Market Analysis A sporting goods company has decided on two possible cities in which to open a new store. Management estimates that City 1 will yield $20 million in revenues if successful and will lose $4 million if not. whereas City 2 will yield $50 million in revenues if successful and will lose $9 million if not. City 1 has a 0.3 probability of being successful and City 2 has a 0.2 probability of being successful. In which city should the sporting goods company open the new store with respect to the expected return from each store?
To calculate: In which city should the sporting goods company open the new store with respective to the expected return from each store.
Given Information:
City 1 will yield 20 million in revenues if successful and will lose $4 million if not and city 2 will yield 50 million in revenues if successful and will lose $9 million if not. The probability of being successful of city 1 has 0.3 and the probability of being successful of city 2 has 0.2.
Formula Used:
If
Step-1: Find the expected value of the city 1 and city 2.
Step-2: Compare which one amount is more.
Calculation:
Consider the given conditions for City 1
And,
Now, apply the formula to find the probability
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