EXPECTED VALUE AND UNCERTANTY

Problem 1: Expected Value

Determine whether you would decide, based on profitability, to go with the product cluster of Product A, Product B, and Product C or the product cluster of Product X, Product Y, and Product Z.

Product A is expecting revenues of $900,000 and costs of $300,000.

Product B is expecting revenues of $700,000 and costs of $200,000.

Product C is expecting revenues of $800,000 and costs of $400,000.

The probability of achieving these revenues and costs are 5% for Product A and 25% for Product C?

Product X is expecting revenues of $700,000 and costs of $300,000.

Product Y is expecting revenues of $800,000 and costs of $250,000.

Product Z is expecting revenues of $600,000 and costs of $300,000.

The probability of achieving these revenues and costs are 35% for Product X and 15% for Product Z?

Your goal is to maximize profits. Which product cluster would you choose?

For any credit, you must show all your work.