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Profit and Demand for Beauticians

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The new owner of a beauty shop is trying to decide whether to hire one, two or three beauticians. She estimates that profits next year (in thousands of dollars) will vary with demand for her services and has estimated demand in three categories, low medium and high:

# of Beauticians Low Demand Medium Demand High Demand
1 50 75 100
2 0 100 100
3 -100 70 300

If she feels the chances of low, medium, and high demand are 50%, 20%, and 30% respectively, what are the expected annual profits for the number of beauticians she will decide to hire?

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Solution Summary

Solution provides steps necessary to calculate expected annual profits with regards to low, medium and high demand.

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Expected annual profit = Sum (Probability X Profit)

For 1 ...

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