John Is Trying to Decide Whether to Expand His Business

question 39

Multiple Choice

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance his revenue will be $100,000 and a 50 percent chance his revenue will be $300,000. If he does expand, it will cost him $150,000, and there is a 30 percent chance his revenue will be $100,000; a 30 percent chance his revenue will be $300,000; and a 40 percent chance his revenue will be $500,000.To make the best decision, John should compare:

• A)the expected value of his revenue if he doesn't expand with the expected value of his revenue if he does expand.
• B)the difference in expected revenue if he does or does not expand to the cost of expansion.
• C)the expected value of his revenue if he expands to the cost of expansion.
• D)None of these are true.

---

Definitions:

Innovations

The introduction of new ideas, goods, services, or processes which improve upon the existing standards, often leading to competitive advantage.

Crossing the Chasm

A marketing theory that describes the challenge of transitioning from early adopters to a broader mainstream market.

Consumer

An individual who purchases goods and services for personal use.

Customer

Someone who pays for a product or service.