This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
To determine whether the programme should be advertised, we will calculate the expected profit for both scenarios: "Do not advertise" and "Advertise". Step 1: Calculate Expected Profit if the programme is NOT advertised. If economic conditions are poor (60% chance), 40 students are attracted. Profit for 40 students = GH¢115,000. Expected profit (poor conditions) = 0.60 × 115,000 = 69,000. If economic conditions are good (40% chance), 20 students are attracted. Profit for 20 students = GH¢15,000. Expected profit (good conditions) = 0.40 × 15,000 = 6,000. The total expected profit if the programme is not advertised is: Expected Profit (No Advertising) = 69,000 + 6,000 = GH¢75,000 Step 2: Calculate Expected Profit if the programme IS advertised. The cost of advertising is GH¢15,000. This cost must be deducted from the profit for each outcome. Scenario A: Economic conditions are poor (60% chance). There is a 65% chance advertising stimulates demand, increasing students to 50. Profit for 50 students = GH¢165,000. Net profit = 165,000 - 15,000 = 150,000. Probability = 0.60 × 0.65 = 0.39. Expected profit = 0.39 × 150,000 = 58,500. There is a 35% chance advertising does not stimulate demand, students remain at 40. Profit for 40 students = GH¢115,000. Net profit = 115,000 - 15,000 = 100,000. Probability = 0.60 × 0.35 = 0.21. Expected profit = 0.21 × 100,000 = 21,000. Scenario B: Economic conditions are good (40% chance). There is a 25% chance advertising stimulates demand, increasing students to 25. Profit for 25 students = GH¢40,000. Net profit = 40,000 - 15,000 = 25,000. Probability = 0.40 × 0.25 = 0.10. Expected profit = 0.10 × 25,000 = 2,500. There is a 75% chance advertising does not stimulate demand, students remain at 20. Profit for 20 students = GH¢15,000. Net profit = 15,000 - 15,000 = 0. Probability = 0.40 × 0.75 = 0.30. Expected profit = 0.30 × 0 = 0. The total expected profit if the programme is advertised is: Expected Profit (Advertising) = 58,500 + 21,000 + 2,500 + 0 = GH¢82,000 Step 3: Compare the expected profits and make a decision. Expected Profit (No Advertising) = GH¢75,000 Expected Profit (Advertising) = GH¢82,000 Since the expected profit from advertising (GH¢82,000) is higher than not advertising (GH¢75,000), the university should advertise the programme. The final answer is The university should advertise the programme, as it yields a higher expected profit of GH¢82,000. Send me the next one 📸