Question

A tire manufacturer has three different models that it sells. The anticipated payoff is dependent on the type sold and the level of demand.

Scenarios
Alternatives Low demand Medium demand High demand
All season $227,656 $365,000 $170,000
All terrain $260,470 $425,000 $400,000
Winter $-183,404 $238,000 $790,000
Probability 0.35 0.40 0.25

Requied:
What is the EMV for the all season tires?

Answer 1

The EMV for the all season tires is:

= $268,180.

Step-by-step explanation:

a) Data and Calculations:

Scenarios

Alternatives Low demand Medium demand High demand

All season $227,656 $365,000 $170,000

All terrain $260,470 $425,000 $400,000

Winter $-183,404 $238,000 $790,000

Probability 0.35 0.40 0.25

EMV for All Season Tires:

Scenarios Payoff Probability Expected Value

Low demand $227,656 0.35 $79,680

Medium demand $365,000 0.40 146,000

High demand $170,000 0.25 42,500

Total EMV = $268,180