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Decision Analysis and Expected Profit

Find the expected profit in the given question.

The Wilhelms Cola Company plans to market a new pineapple-flavored cola this summer. The decision is whether to package the cola in returnable or in no-return bottles. Currently, the state legislature is considering eliminating no-return bottles. Tybo Wilhelms, president of Wilhelms Cola Company has discussed the problem with his state representative and established the probability to be .70 that no-return bottles will be eliminated. The following table shows the estimated monthly profits (in thousands of dollars) if the pineapple cola is bottled in returnable versus no-return bottles. Of course, if the law is passed and the decision is to bottle the cola in no-return bottles, all profits would be from out-of-state sales. Compute the expected profit for both bottling decisions. Which decision do you recommend?

Alternative Law is passed S1 Law is not passed S2
Returnable bottle 80 40
No-return bottle 25 60

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There is a .70 probability that no-return bottles will be eliminated (law is passed) and a .30 probability that no-return bottles will ...

Solution Summary

This solution calculates the expected profit and which decision is more profitable.