You’re the manager of global opportunities for a U.S. manufacturer, who is consi

Question

You’re the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales into Europe. Your market research has identified 3 potential market opportunities: England, France, and Germany. If you enter the English market, you have a 0.5 chance of big success (selling 100,000 units at a per-unit profit of $8), a 0.3 chance of moderate success (selling 60,000 units at a per-unit profit of $6), and a 0.2 chance of failure (sell nothing). If you enter the French market, you have a 0.4 chance of big success (selling 120,000 units at a per-unit profit of $9), a 0.4 chance of moderate success (selling 50,000 units at a per-unit profit of $6), and a 0.2 chance of failure (sell nothing). If you enter the German market, you have a 0.2 chance of huge success (selling 150,000 units at a per-unit profit of $10), a 0.5 chance of moderate success (selling 70,000 units at a per-unit profit of $6), and a 0.3 chance of failure (selling nothing). If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $250,000
what is your potential profit?

Explanation / Answer

England ((0.5*100,000*8)+(0.3*60,000*6)+(0.2*0))-250,000=258,000 France ((0.4*120,000*9)+(0.4*50,000*6)+(0.2*0))-250,000=302,000 Germany ((0.2*150,000*10)+(0.5*70,000*6)+(0.3*0))-250,000=260,000 The best market that will yield the most profit is to enter France

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