Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

George Goleb is considering the purchase of two types of industrial robots. The Rob1 is a large robot capable of performing a variety of tasks,

George Goleb is considering the purchase of two types of industrial robots. The Rob1 is a large robot capable of performing a variety of tasks, including welding and painting. The Rob2 is a smaller and slower robot, but it has all the capabilities of Rob1. The robots will be used to perform a variety of repair operations on large industrial equipment. Of course, George can always do nothing and not buy any robots. The market for the repair operation could be either favorable or unfavorable. George expects that in a favorable market, he would earn $50,000 with Rob1 and $30,000 with Rob2. In an unfavorable market, he would lose $40,000 with Rob1 and $20,000 with Rob2. Without gathering further information, George estimates that there is a 60% chance of a favorable market. George is also considering the possibility of conducting a survey on the market potential for industrial equipment repair using robots. The cost of the survey is $5,000. Historical data shows that the survey predicts a favorable market 62% of the time. If the survey predicts a favorable market, the actual market turns out to be favorable 87.1% of the time. On the other hand, if the survey predicts an unfavorable market, the actual market turns out to be unfavorable 84.2% of the time. Even after conducting a survey, George would like to keep the option of not purchasing any robots open.

What is the maximum amount that George should pay for the survey? (Provide your answer without decimals)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Fiscal Impact Handbook

Authors: David Listokin

1st Edition

1138535672, 978-1138535671

More Books

Students also viewed these Finance questions