Mark M. Upp has just been fired as university bookstore manager for setting prices too low (only 20% above suggested retail). He is thinking of opening the competing bookstore near campus, and he has started the analysis of situation. There are two possible sites under consideration. One is relatively small, while other is large. If he opens at Site 1 and demand is good, he will generate profit of $50,000. If demand is low, he will lose $10,000. If he opens at Site 2 and demand is high, he will create the profit of $80,000, but he will lose $30,000 if demand is low. He also has option of not opening at either site. He thinks that there is 50% chance that demand will be high. The market research study will cost $5,000. Probability of the good demand given the favorable study is 0.8. Probability of the good demand given the unfavorable study is 0.1. There is 60% chance that study will be favorable.
i) Should Mark use the study? Why?
ii) If study is done and results are favorable, what would Mark's expected profit be?