James Lawson’s Bed and Breakfast, in a small his-toric Mississippi town, must decide how to subdivide (remodel) the large old home that will become its inn. There are threealternatives: Option A would modernize all baths and combinerooms, leaving the inn with four suites, each suitable for two tofour adults. Option B would modernize only the second floor; theresults would be six suites, four for two to four adults, two fortwo adults only. Option C (the status quo option) leaves all wallsintact. In this case, there are eight rooms available, but only twoare suitable for four adults, and four rooms will not have privatebaths. Below are the details of profit and demand patterns thatwill accompany each option: ANNUAL PROFIT UNDERVARIOUS DEMAND PATTERNSALTERNATIVES HIGH P AVERAGE PA (modernize all) $90,000 .5 $25,000 .5B (modernize 2nd) $80,000 .4 $70,000 .6C (status quo) $60,000 .3 $55,000 .7Which option has the highest expected monetary value?
James Lawson’s Bed and Breakfast, in a small his-
toric Mississippi town, must decide how to subdivide (remodel)
the large old home that will become its inn. There are three
alternatives: Option A would modernize all baths and combine
rooms, leaving the inn with four suites, each suitable for two to
four adults. Option B would modernize only the second floor; the
results would be six suites, four for two to four adults, two for
two adults only. Option C (the status quo option) leaves all walls
intact. In this case, there are eight rooms available, but only two
are suitable for four adults, and four rooms will not have private
baths. Below are the details of profit and demand patterns that
will accompany each option:
ANNUAL PROFIT UNDER
VARIOUS DEMAND PATTERNS
ALTERNATIVES HIGH P AVERAGE P
A (modernize all) $90,000 .5 $25,000 .5
B (modernize 2nd) $80,000 .4 $70,000 .6
C (status quo) $60,000 .3 $55,000 .7
Which option has the highest expected monetary value?
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