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What is the expected value of profit

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David is concerned with setting a correct production level. He can produce 500 units or 1100 units. Regardless of production, there is a 45% chance of high demand (2000 units) and a 35% chance of low demand (350 units) and a 20% chance of average demand (1000 units). Each unit costs $15 to produce and sells for $25. He can only sell the minimum of either demand or production (since he can't sell what he doesn't make and can't sell what isn't demanded).

  1. What is the expected value of profit if you make a decision based on the expected value of profit? 
  2. What is the expected value of profit if you make a decision based on the maximax strategy? 

Reference no: EM132431367

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