Question: The J. R. Ryland Computer Company is considering a plant expansion that will enable the company to begin production of a new computer product. The company’s president must determine whether to make the expansion a medium- or large-scale project. The demand for the new product involves an uncertainty, which for planning purposes may be low demand, medium demand, or high demand. The probability estimates for the demands are 0.20, 0.50, and 0.30, respectively. Letting x indicate the annual profit in $1000s, the firm’s planners developed profit forecasts for the medium- and large-scale expansion projects.

a.) Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit? = Medium 145; large 140; prefer medium

b.) Compute the variance for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk of uncertainty? = Medium 2725; large 12,400; prefer medium