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3 . Individual Problems 1?-4 Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of
3 . Individual Problems 1?-4 Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $200,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $300,000, there is a 0.5 chance you will be able to sell the machine. If you commit to a price of $400,000, there is a 0.2 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.1 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected vaiue of attempting to seii the machine at that price. (Hint: Be sure to take into account the vaiue of the machine to your company in the event that you are not be ahie to seii the machine.) Posted Price Expected Value ($) Probability of Sale ($) $500,000 0.1 $400,000 0.2 $300,000 0.5 Assume you must commit to one posted price. In order to maximize the expected profit of the potential sale, which posted price would you commit to in order to maximize the expected value of the potential sale of the machine? 0 $400,000 0 $300,000 0 $500,000
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To determine the expected value of attempting to sell the machine at each price we need to calculate the expected value for each price This can be don...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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