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    Expected profit

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    A company operating a chain of drug stores plans to open a new store in one of the locations. The management of the company figures that at the first location the store will show an annual profit of $20,000 if it is successful and an annual loss of $2,000 if it is not. At the second location, the store will show an annual profit of $25,000 if it is successful and an annual loss of $5,000 if it is not. If the probability of success is 3/5 in the first location and 2/5 in the second location, where should the company open the new store so as to maximize expected profit?

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    Solution Summary

    Expected profit is determined.

    $2.19