Megajoy to be indifferent between large and small arcade

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Reference no: EM132129790

Megajoy corp. is planning to open a new video arcade. It has narrowed the choices to a large or small arcade. The cost of a large arcade is $400, and the cost of a small arcade is $300. It has forecast that the demand will be low wiht probability 0.3 and high with probability 0.7. If MegaJoy builds a small arcade and the demand is low, then it expects revenues of $380. If Megajoy builds a small arcade and the deemand is high, then it has several alternatives: do nothing and earn revenue of $380, use overtime and earn revenue of $400, or expand the arcade and earn revenue of $410. If Megajoy builds a large arcade and the demand is high, then it expects revenues of $540. If Megajoy builds a large arcade and the demand is low, then it has two alternatives: do nothning and earn revenue of $380, or reduce price and earn revenues $450. Q1 A consulting firm has offered to perform research and forecast the demand for Megajoy. The firm will charge $8(thousand) for its services, and it clamms that the informantion will be 100% accurate. Should Megajoy pya for the consulting services? Justify your response wiht numbers. Q2 There is some question about probability of a high demand (currently estimated to be 0.7) What value for this probability would cause Megajoy to be indifferent between large and small arcade?

Reference no: EM132129790

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