Answer:
Let X be probability XYZ offers a competing product
EMV (assembly line) = $10,000∗X+$40,000∗(1-X)
EMV (addition) = -$100,000∗X+$600,000∗(1-X)
$10,000∗X+$40,000∗(1-X) = -$100,000*X+$600,000∗(1-X)
$10,000∗X-$40,000∗X+$40,000 = -$100,000∗X-$600,000∗X$600,000
-$30,000∗X+$700,000∗X = $600,000-$40,000
$670,000∗X = $560,000
X = $560,000/$670,000
X = 0.836
ABC will be indifferent between the two alternatives if the probability that XYZ will offer a competing product is estimated to be 0.836.
ABC should invest in the addition if the probability that XYZ will offer a competing product is estimated to be less than 0.836.
