Scenario A Company Must Decide Whether or Not to Change Its

question 24

Short Answer

Scenario
A company must decide whether or not to change its packaging now to a more environmentally safe material.The impact of the decision on profits depends on which future scenario develops.Scenario 1 is that the media does not focus heavily on concerns about packaging and no new laws requiring changes in packaging are passed.Under this scenario,the company will make $30 million if they change their packaging now,but will make $70 million if they do not change their packaging now.Scenario 2 is that the media does focus heavily on concerns about packaging and no new laws requiring changes in packaging are passed.Under this scenario,the company will make $45 million if they change their packaging now,but will make $50 million if they do not change their packaging now.Scenario 3 is that the media does focus heavily on concerns about packaging and new laws requiring changes in packaging are passed.Under this scenario,the company will make $55 million if they change their packaging now,but will make only $10 million if they do not change their packaging now.The probabilities of the three scenarios are 0.3,0.5,and 0.2,respectively.
-What decision will be made to maximize expected payoff?

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