1. Expected Value Omar's Fruit Shop sells only apples and bananas. Each week, Omar puts either apples or bananas on sale. He is trying to figure out which fruit he should put on sale this week. Omar gets all of his business from people who walk by his fruit shop and stop in. He performs some market research and asks 800 different people if they would purchase apples, bananas, or no fruit if they walked by and apples were on sale. He does the same for bananas being on sale. This week a total of 400 people will walk by Omar's Fruit Shop. The following table shows the profit for each type of fruit depending on which fruit Omar puts on sale: Apples on sale Bananas on sale Profit from apples $0.25 $0.40 Profit from bananas $0.45 $0.30 The following table shows the results from his market research. Customer choice Apples on sale Bananas on sale Apples 604 92 Bananas 90 620 No fruit 106 88 Total 800 800 What is Omar's expected profit if he puts apples on sale? What is Omar's expected profit if he puts bananas on sale? To maximize his expected profit, Omar should put apples or bananas on sale.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter1: Ten Principles Of Economics

Section: Chapter Questions

Problem 6PA

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1. Expected Value

Omar's Fruit Shop sells only apples and bananas. Each week, Omar puts either apples or bananas on sale. He is trying to figure out which fruit he should put on sale this week.

Omar gets all of his business from people who walk by his fruit shop and stop in. He performs some market research and asks 800 different people if they would purchase apples, bananas, or no fruit if they walked by and apples were on sale. He does the same for bananas being on sale.

This week a total of 400 people will walk by Omar's Fruit Shop.

The following table shows the profit for each type of fruit depending on which fruit Omar puts on sale:

Apples on sale Bananas on sale

Profit from apples $0.25 $0.40

Profit from bananas $0.45 $0.30

The following table shows the results from his market research.

Customer choice Apples on sale Bananas on sale

Apples 604 92

Bananas 90 620

No fruit 106 88

Total 800 800

What is Omar's expected profit if he puts apples on sale?

What is Omar's expected profit if he puts bananas on sale?

To maximize his expected profit, Omar should put apples or bananas on sale.

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