John Is Trying to Decide Whether to Expand His Business

question 91

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 he will earn $100,000 and a 50 percent chance he will earn $300,000.If he does expand,there is a 30 percent chance he will earn $100,000,a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000.It will cost him $150,000 to expand.To make the best decision,John should compare:

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

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Definitions:

Consult Individually

The act of seeking advice or opinions from individuals on a one-to-one basis.

Subordinates

Employees or team members who are under the direction and control of a manager or supervisor within an organizational hierarchy.

Managerial Autonomy

The degree of freedom and independence a manager has in making decisions and setting strategies within an organization.

Follower Readiness

A concept in leadership that evaluates the extent to which followers have the ability and willingness to accomplish a specific task.