Courtney's Clothing Shop has been doing exceptionally well this year and she wants to expand. She is considering three options: renovate her current shop, open a new shop in a more localized area of town, or have "pop-up" shops around the city in different locations each weekend. Courtney plans to keep her current shop open whichever option she selects. Profits from the expansion are dependent upon whether the market is poor, average, or great next year. Courtney assembles the following payoff table to help make her decision:

 

	Average Market	Poor Market	Great Market
Renovate Current Shop	$16,000	($10,000)	$25,000
Open a New Shop	$23,000	($18,000)	$39,000
Have Pop-Up Shops	$11,000	$6,000	$21,000

 

Part 1:

If Courtney is pessimistic, which option would she choose?

Part 2:

Upon doing some market research, Courtney expects that next year the probability of an average market is 0.35, the probability of a poor market is 0.4, and the probability of a great market is 0.25. Using the EMV, which option should Courtney select?

Answer rating: 100% (QA)

Part 1 If Courtney is pessimistic she would choose the option that provides the highest payoff in th... View the full answer