Homework answers / question archive / Sophia wants to open a small shoe shop in downtown

Sophia wants to open a small shoe shop in downtown

Accounting

Share With

Sophia wants to open a small shoe shop in downtown. Her options are to open a small shop, a medium-sized shop, or no shop at all. The market for a shoe shop can be good, average, or bad. The probabilities for these three possibilities are 0.3 for a good market, 0.5 for an average market, and 0.2 for a bad market. The net profit or loss for the medium-sized and small shops for the various market conditions are given in the following payoff table: Building no shop at all yields no loss and no gain. What do you recommend?

Good market Average market Bad market Small shop $ 70,000 $20,000 -$35,000 Medium shop $95.000 $30,000 - $55,000 No shop $0 $0 $0 Probabilities 0.3 0.5 0.2