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8.3 Expected Value

8.3 Expected Value
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  • Math Help

    Cell phone A's cost of development is $2,500,000. If the net sales are $5,000,000, then the company's profit will be

    If the net sales are $3,000,000, then the company's profit will be

    If the net sales are $1,500,000, then the company's profit will be

    Cell phone B's cost of development is $1,500,000. If the net sales are $4,000,000, then the company's profit will be

    If the net sales are $2,000,000, then the company's profit will be

    If the net sales are $500,000, then the company's profit will be

  • Consumer Suggestion

    Are you planning on buying a new cell phone? You need to decide if you want a conventional cell phone or a smart phone. You also want to take into consideration the cell phone provider. Visit the Cell Phone & Service Buying Guide from ConsumerReports.org to compare the two types of phones and their features, find the top rated cell phones in each category, and compare service providers.

  • Checkpoint Solution

    For cell phone C, the company's profit is found by subtracting $2 million from the net sales. For cell phone D, the company's profit is found by subtracting $1.5 million from the net sales. A decision tree is shown below.

    I would develop cell phone C because it has a much higher expected value, $1.5 million, compared to $0.65 million. It also has the greatest profit, $3 million, in the best case scenario and the least loss, $0.5 million, in the worst case scenario.

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