Current Attempt in Progress

Demand has grown at Dairy May Farms, and it is considering expanding. One option is to expand by purchasing a very large farm that will be able to meet expected future demand. Another option is to expand the current facility by a small amount now and take a wait-and-see attitude, with the possibility of a larger expansion in two years. Management has estimated the following chances for demand:

• The likelihood of demand being high is 0.79.
• The likelihood of demand being low is 0.21.

Profits for each alternative have been estimated as follows:

• Large expansion has an estimated profitability of either $47,500 or $27,200, depending on whether demand turns out to be high or low.
• Small expansion has a profitability of $16,300, assuming that demand is low.
• Small expansion with an occurrence of high demand would require considering whether to expand further. If the company expands at that point, the profitability is expected to be $41,600. If it does not expand further, the profitability is expected to be $12,070.

(b) Calculate expected values for large and small expansions. What should Dairy May Farms do?

EV _{small expansion} = $enter expected value for small expansions in dollars

EV _{large expansion} = $enter expected value for large expansions in dollars

Company sould opt select an option

expansion.