A software company has to decide which of two advertising strategies to adopt: TV commercials or newspaper ads. The marketing department has estimated that sales and their probability under each alternative plan are as given in the table below:
(TV Commercials) Strategy B
Sales Probability Sales Probability
$8,000 0.2 $8,000 0.3
10,000 0.3 12,000 0.4
12,000 0.3 16,000 0.3
The firm's profit is 50 percent sales.
(a) Calculate the expected profit under each promotion strategy
(b) Calculate the standard deviation of the distribution of profits for each promotion strategy
(c) Which of the two promotion strategies is more risky?
(d) Which promotion strategy should the firm choose?
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The solution calculates the standard deviation of the distribution of profits for each promotion strategy.