Answer:
a) Expected profit = $300,000
b) Expected profit = $405,000
c) The second mall should be chosen in order to maximize the expected profit
Step-by-step explanation:
If the first mall is selected:
Anticipated profit on success = $900,000
Anticipated loss on failure = $300,000
Probability of success, p = 1/2
Probability of failure, q = 1-p = 1-1/2
q = 1/2
If the second mall is selected:
Anticipated profit on success = $600,000
Anticipated loss on failure = $180,000
Probability of success, p = 3/4
Probability of failure, q = 1-p = 1-3/4
q = 1/4
a) Expected profit for the first mall:
Expected profit = (p*profit) - (q*loss)
Expected profit =(1/2 * 900000) - (1/2 * 300000)
Expected profit = $300,000
b) Expected profit for the second mall:
Expected profit = (p*profit) - (q*loss)
Expected profit =(3/4 * 600000) - (1/4 * 180000)
Expected profit = $405,000
c) The second mall should be chosen in order to maximize the expected profit
