SOLUTION: A manufacturer is considering the manufacture of a new and better mousetrap. She estimates the probability that the new mousetrap is successful is 3/4. If it is successful it would

Question 996923: A manufacturer is considering the manufacture of a new and better mousetrap. She estimates the probability that the new mousetrap is successful is 3/4. If it is successful it would generate profits of $120,000. The development costs for the mousetrap are $98,000. Should the manufacturer proceed with plans for the new mousetrap? Why or why not?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
if she is successful, she will make a profit of 120,000

if she fails, she lost 98,000.

her expected value is .75 * 120,000 - .25 * 98,000 = 65,500.

based on the expected value, she should proceed with her plans.

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