John Is Trying to Decide Whether to Expand His Business

question 49

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.The expected value of John's earnings if he chooses not to expand is:

• A) $400,000.
• B) $200,000.
• C) $250,000.
• D) $225,000.

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Definitions:

Revoked

The act of officially canceling or rescinding a legal right, license, permission, or privilege.

Firm Offer

A binding proposal to sell or buy goods that holds the offering party to its terms for a certain period.

Merchant

An individual or company engaged in the business of buying and selling goods for profit.

Misprint

An error in printing that results in incorrect text, images, or formatting being produced.