Question
Tina Talbot of One Plus 6T has just been fired as the sales manager for setting prices too low(only 20% above suggested retail). She is
Tina Talbot of One Plus 6T has just been fired as the sales manager for setting prices too low(only 20% above suggested retail). She is considering opening a competing store near her previous employer's site, and she has begun an analysis of the situation. There are two possible sites under consideration. On is relatively small while the other is large. If she opens at Site 1 and demand is good, she will generate a profit of $50,000. If demand is low, she will lose $10,000. If she opens at Site 2 and demand is high she will generate a profit of $80,000, but she will lose $30,000 if demand is low. She also had decided that she will open at one of these sites. She believes that there is a 60% chance that demand will be high. She assigns the following utilities to the different profits:
Site 1: U (50,000) = .72, U (-10,000) = .22
Site 2: U (80,000) = 1, U (-30,0.00) = 0
Using expected utility theory, what should Tina do?
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