Question

1. Individual Problems 17-1

Malaysia

You're the manager of global opportunities for a U.S. manufacturer that is considering expanding sales into Asia. Your market research has identified the market potential in Malaysia, the Philippines, and Singapore as described in the following table:

	Success Level
	Big	Mediocre	Failure
Malaysia
Probability	0.7	0.1	0.2
Units	1,100,000	352,000	0
Philippines
Probability	0.4	0.3	0.3
Units	800,000	480,000	0
Singapore
Probability	0.2	0.3	0.5
Units	1,300,000	650,000	0

The product sells for $10, and each unit has a constant marginal cost of $8. Assume that the (fixed) cost of entering the market (regardless of which market you select) is $250,000.

In the following table, enter the expected number of units sold, and the expected profit, from entering each market.

Market	Expected Number of Units Sold	Expected Profit
Malaysia
Philippines
Singapore

If you were to enter one of the previously described markets, which one would you enter in order to earn the highest expected profit?

Malaysia

Philippines

Singapore

Answer 1

Expected units of sales = probability of big time * units + probability of mediocre time * units + probability of failure time * units

Fixed cost = $250,000

Price per unit = $10

Marginal cost = $8

Contribution per unit = $2

Malaysia:

Expected number of units sold = 0.7 * 1,100,000 + 0.1 * 352,000 + 0.2 * 0 = 805,200

Profit = total contribution - fixed cost = 2 * 805,200 - 250,000 = 1,360,400

Philippines:

Expected number of units sold = 0.4 * 800,000 + 0.3 * 480,000 + 0.3 * 0 = 464,000

Profit = total contribution - fixed cost = 2 * 464,000 - 250,000 = 678,000

Singapore:

Expected number of units sold = 0.2 * 1,300,000 + 0.3 * 650,000 + 0.5 * 0 = 455,000

Profit = total contribution - fixed cost = 2 * 455,000 - 250,000 = 660,000

So, I would enter in the market of Malaysia as the expected profit is highest.

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