Find the expected profit for each price should you make

Reference no: EM13390328

You are considering an investment that will enable you to produce a new product. Your market research has indicated that the probability that the new product will be extremely successful is .2 and the probability that it will only be moderately successful is .8. The estimated demand curve if the product is extremely successful indicates 100 units per week at a price of $12 and 300 units per week at a price of $8. If it is only moderately successful your demand curve indicates 50 units per week at a price of $12 and 80 units per week at a price of $8. Your fixed costs are $200 per week and your marginal costs are constant at $5 in this production range. What is the expected profit for each price? Should you make this investment assuming that you are risk neutral? If so, which price would you select ($12 or $8)?

Reference no: EM13390328

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