Answer: Cola is more profitable over Coffee
Step-by-step explanation:
E(cola) = 0.3 * 1500 + 0.7 * 5000
E(cola) = 450 + 3500
E(cola) = 3950
E(coffee) = 0.3 * 4000 + 0.7 * 1000
E(coffee) = 1200 + 700
E(coffee) = 1900
From the decision tree which is attached, and the calculations above, it would be advised that the firm should focus on Cola, since it has a higher expected revenue of $3950, compared to the expected revenue of $1900 for coffee.
See the attached image for the decision tree
