SOLUTION: Daniel has to decide whether to sell lemonade or coffee. He's calculated that if he sells lemonade there is a 20% chance of getting $100 and an 80% chance of losing $20. If he sell

Question 998574: Daniel has to decide whether to sell lemonade or coffee. He's calculated that if he sells lemonade there is a 20% chance of getting $100 and an 80% chance of losing $20. If he sells coffee, there is a 40% chance of getting $80 and a 60% chance of losing $5. Investment costs are already included. Which should he sell?
Answer by stanbon(75887) (Show Source): You can put this solution on YOUR website!
Daniel has to decide whether to sell lemonade or coffee.
He's calculated that if he sells lemonade there is a 20% chance of getting $100 and an 80% chance of losing $20.
Expected value for lemonade = 0.20*100 - 0.8*20 = 20-16 = $4.00
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If he sells coffee, there is a 40% chance of getting $80 and a 60% chance of losing $5. Investment costs are already included.
Expected value for coffee = 0.40*80 - 0.60*5 = 32 - 3 = $29.00
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Which should he sell?
Ans: Coffee
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Cheers,
Stan H.
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