Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $350,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $400,000, there is a 0.4 chance you will be able to sell the machine. If you commit to a price of $450,000, there is a 0.25 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.1 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price Probability of Sale Expected Value ($) ($) $500,000 0.1 $450,000 0.25 $400,000 0.4 Assume you must commit to one posted price. In order to maximize the expected profit of the potential sale, which posted price would you commit to in order to maximize the expected value of the potential sale of the machine? $500,000 $450,000 $400,000

Name: Your company has a customer who is shutting down a production line, an
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Description: Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $3

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $350,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $400,000, there is a 0.4 chance you will be able to sell the machine. If you commit to a price of $450,000, there is a 0.25 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.1 chance you will be able to sell the machine. These probabilities are summarized in the following table.

For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.)

Posted Price	Probability of Sale	Expected Value
($)	($)
$500,000	0.1
$450,000	0.25
$400,000	0.4

Assume you must commit to one posted price.

In order to maximize the expected profit of the potential sale, which posted price would you commit to in order to maximize the expected value of the potential sale of the machine?

$500,000

$450,000

$400,000

You're a contestant on a TV game show. In the final round of the game, if contestants answer a question correctly, they will increase their current winnings of $2 million to $3 million. If they are wrong, their prize is decreased to $1,000,000. You believe you have a 25% chance of answering the question correctly.

Ignoring your current winnings, your expected payoff from playing the final round of the game show is

. Given that this is positive or negative , you should or should not play the final round of the game. (Hint: Enter a negative sign if the expected payoff is negative.)

The lowest probability of a correct guess that would make the guessing in the final round profitable (in expected value) is......... . (Hint: At what probability does playing the final round yield an expected value of zero?)

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