Mark M. Upp has fired as university bookstore manager for setting prices too low (only 20 percent above suggested retail). He is hinking of opening the competing bookstore near campus, and he has started the analysis of situation. There are 2 possible sites under consideration. One is relatively small, where as other is large. If he opens at Site 1 and demand is good, he will make the profit of $50,000. If demand is low, he will lose $10,000. If opens at Site 2 and demand is high, he will make the profit of $80,000, but will lose $30,000 if demand is low. He also has choice 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 study? Explain why?
ii) If study is done and results are favorable, find Mark's expected profit?