Remox Corporation is a British firm that sells high-fashion sportswear in the United States. Congress is currently considering the imposition of a protective tariff on imported textiles. Remox is considering the possibility of moving 50 percent of its production to the United States to avoid the tariff. This would be accomplished by opening a plant in the United States. The following table lists the profit outcomes under various scenarios:

Remox hires a consulting firm to assess the probability that a tariff on imported textiles will in fact pass a congressional vote and not be vetoed by the president. The consultants forecast the following probabilities:
Tariff will pass ........ 30%
Tariff will fail ........ 70
a. Compute the expected profits for both options.
b. Based on the expected profit only, which option should Remox choose?
c. Compute the probabilities that would make Remox indifferent between options A and B using that rule.
d. Compute the standard deviations for options A and B facing Remox Corporation.
e. What decision would Remox make using the mean–variance rule?
f. What decision would Remox make using the coefficient of variationrule?

  • CreatedNovember 18, 2014
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