Question: Fiero Products, LTD, of Bologna, Italy, makes a variety of footwear, including indoor slippers, children's shoes, and flip-flops. To keep up with increasing demand, it is considering three expansion plans: (1) a small factory with yearly costs of $150,000 that will increase the production of flip-flops to 400,000; (2) a mid-sized factory with yearly costs of $250,000 that will increase the production of flip-flops by 600,000; and (3) a large factory with yearly costs of $350,000 that will increase the production of flip-flops by 900,000. The profit per flip-flop is projected to be $0.75. The probability distribution of demand for flipflops is considered to be
Demand 300,000 700,000 900,000
Probability 0.2 0.5 0.3
a. Compute the expected profit for each of the expansion plans.
b. Calculate the standard deviation for each of the expansion plans.
c. Which expansion plan would you suggest? Provide the statistical reasoning behind your selection.