: Your company has a customer who is shutting down a production line, and it is

Question

: 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 $250,000. • Your dealings on the secondhand market lead you to believe that there is a 0.4 chance a random buyer will pay $300,000, a 0.25 chance the buyer will pay $350,000, a 0.1 chance the buyer will pay $400,000, and a 0.25 chance it will not sell. • If you must commit to a posted price, what price maximizes profits?

Explanation / Answer

The price of maximum profit is

4/10x 300000+1/4x 350000+4000-1/4x 250000

= 211500-62500

= 143000 (Answer)

By,

Nishant Bhatt

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