John Is Trying to Decide Whether to Expand His Business

question 92

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.What is the difference in expected earnings if John chooses to expand versus not expand?

• A)$320,000
• B)$200,000
• C)$150,000
• D)$120,000

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Definitions:

Avoidance Response

A behavior that aims to prevent the occurrence of an unpleasant experience or situation by avoiding the stimulus that leads to it.

Unconditioned Response

An innate, involuntary response to a stimulus that happens without any previous education or conditioning.

Rowdy

Behaving in a noisy, disorderly, and often disruptive manner, typically as a part of a group or gathering.

Reinforcement

In psychology, a process by which the likelihood of a behavior is increased through the administration of positive stimuli (rewards) or the removal of negative stimuli.