Solution-Expected value that maximizes profits

Expected value that maximizes profits

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Reference no: EM131070073

Modern Electronics specializes in manufacturing modern electronic components. It also builds the equipment that produces the components. Modern Electronics is considering building a new facility but the estimated profits would be impacted by the type of market that develops. The probability for a strong market is 0.4; for a fair market is 0.4; and for a poor market is 0.2. You are responsible for advising the president of Modern Electronics on the type facility that should be built or to not build a facility at all. The table shows the estimated profits under each market and for each size facility.

	Estimated Profits
	Strong Market	Fair Market	Poor Market
Build a large facility	550,000	150,000	-500,000
Build a medium-size facility	500,000	125,000	-150,000
Build a small facility	250,000	75,000	-25,000
Do not build a facility	0	0	0

1. What is your recommendation to the president based on expected value that maximizes profits (EMV).

2. Provide a second recommendation to the president that minimizes regret.

Reference no: EM131070073

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Expected value that maximizes profits

Reference no: EM131070073

Reference no: EM131070073

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