John Is Trying to Decide Whether to Expand His Business

question 83

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.If John decides to expand based on expected value, it means that:

• A)the difference in expected revenue from expanding versus not expanding must be greater than $150,000.
• B)the expected revenue from not expanding must be less than $150,000.
• C)the difference in expected revenue from expanding versus not expanding must be less than $150,000.
• D)the expected revenue from expanding must be greater than $150,000.

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Definitions:

Structured

Organized in a clear, systematic way, often with a defined pattern or framework.

Least Structured

Situations, tasks, or environments that lack clear rules, roles, or procedures, requiring individuals to rely on improvisation or innate problem-solving skills.

Acquisitive

Characterized by a strong desire to acquire and possess.

Escape Panic

A type of widespread alarm and irrational behavior among a group of people attempting to flee from a perceived threat.