Compute the expected value (to 2 decimals) for the profit associated with the two expansion alternatives. Medium   thousand Large   thousand Which decision is preferred for the objective of maximizing the expected profit?   preferred. b. Compute the variance (to 2 decimals) for the profit associated with the two expansion alternatives. Medium   Large

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The J. R. Ryland Computer Company is considering a plant expansion to enable the company to begin production of a new computer product. The company’s president must determine whether to make the expansion a medium- or large-scale project. Demand for the new product is uncertain, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for demand are 0.27 ,0.50 , and ,0.23 respectively. Letting  and  indicate the annual profit in thousands of dollars, the firm’s planners developed the following profit forecasts for the medium- and large-scale expansion projects.

    Medium-Scale
Expansion Profit
Large-Scale
Expansion Profit
  x f(x) y f(y)  
low 50 0.27 0   0.27  
Medium 150 0.50 100 0.50
High 200 0.23 300 0.23

a. Compute the expected value (to 2 decimals) for the profit associated with the two expansion alternatives.

Medium   thousand
Large   thousand

Which decision is preferred for the objective of maximizing the expected profit?

  preferred.

b. Compute the variance (to 2 decimals) for the profit associated with the two expansion alternatives.

Medium  
Large  

 

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