Question
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
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 $250,000. Your dealings on the secondhand market lead you to believe that there is a 0.4 chance a random buyer will pay $300,000, a 0.25 chance the buyer will pay $350,000, a 0.1 chance the buyer will pay $400,000, and a 0.25 chance it will not sell.If you must commit to a posted price, what price maximizes profits? Use the following table:
Price | Prob. of sale | Expected profit |
$400,000 | 10% | .1(400-250)=$15,000 |
$350,000 | 35% | .35(350-250)=$35,000 |
$300,000 | 75% | .75(300-250)=$37,500 |
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