document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=36048>Question 36048</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Hi Could somebody help me or give me guidance on how to answer the questions below please, thanks, Sarah<BR>\n" );
document.write( "Sam's Takeaway has the opportunity to open a new shop, but is unsure of the demand.  Initial estimations are that there is a 80% chance of high demand and 20% chance of low demand.<BR>\n" );
document.write( "Sam's Takeaway must choose between a large, medium or small shop.  The large shop has the potential to make a profit of £50,000 if there is high demand but a loss of £10,000 if demand is low.  The medium shop could make £40,000 or £15,000 depending on whether there is high or low demand, respectively.  Whilst, the small shop could yield a £20,000 profit with high demand or £10,000 with low demand.\r<BR>\n" );
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document.write( "1	(a)	Sam will use the Expect Value Approach, with the probabilities above.  Construct a table, in Microsoft Excel to compare the decision alternatives.  This table should use formulas where appropriate, and be able to clearly show the “expected value” and also a description of the preferred shop size.<BR>\n" );
document.write( "(6 marks)\r<BR>\n" );
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document.write( "	(b)	Sam's Takeaway revises their estimations from 80% high demand and 20% low demand to 70% high demand and 30% low demand  Does this change to decision alternative, and if so how? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #22080 by </B><A HREF=/tutors/aboutme.mpl?userid=Prithwis><B>Prithwis(166)</B></A><img src=\"/images/stars/stars-09.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Prithwis><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.nriassociation.com/BeliveITorNOT/mittal70millionHouse.jpg valign=middle><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=22080\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> Find the probabilities of each event, as specified in your question.<BR>\n" );
document.write( "The probability of high demand for Sam to open a new shop is .80;<BR>\n" );
document.write( "The probability of low demand for Sam to open a new shop is .20;<BR>\n" );
document.write( "For Large Shop:<BR>\n" );
document.write( "Potential profit on high demand is £50,000<BR>\n" );
document.write( "Potential loss on low demand is £10,000<BR>\n" );
document.write( "Expected value is determined as E = x1.p1 + x2.p2 + ... + xn.pn where xi is the value associated with i-th event and pi is the probability of i-th event.<BR>\n" );
document.write( "E (for large shop)  = (£50,000)(.8) + (-£10,000)(.2) (-ve value is due to loss)<BR>\n" );
document.write( "=> E (for large shop) = £40,000 - £2000 = £38,000 (expected gain);<BR>\n" );
document.write( "E (for medium shop)  = (£40,000)(.8) + (£15,000)(.2) <BR>\n" );
document.write( "=> E (for medium shop) = £32,000 + £3000 = £35,000 (expected gain);<BR>\n" );
document.write( "E (for small shop) = (£20,000)(.8) + (£10,000)(.2)<BR>\n" );
document.write( "=> E (for small shop) = £16,000 + £2000 = £18,000 (expected gain);<BR>\n" );
document.write( "Preferred shop size would be large because it generates the maximum profit.<BR>\n" );
document.write( "..........<BR>\n" );
document.write( "You can use the same approach for the revised demand (probabilities will be different based on the revision; one will .7, instead of .8; the other will be .3, instead of .2)\r<BR>\n" );
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document.write( " </SPAN>\n" );
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