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 three 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 (selling 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 (selling 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, should you enter one of the European markets? If so, which one? If you enter, what is your expected profit?

Answer 1

		ENGLISH				FRENCH				GERMAN
		Probability	Profit	Expected Revenue		Probability	Profit	Expected Revenue		Probability	Profit	Expected Revenue
Big Success		0.5	800000	400000		0.4	1080000	432000		0.2	1500000	300000
Moderate Successs		0.3	360000	108000		0.4	300000	120000		0.5	420000	210000
Low Success		0.2	0	0		0.2	0	0		0.3	0	0
Total expected Profits				508000				552000				510000
Less: total cost of entering the market				250000				250000				250000
Net Income				258000				302000				260000
Hence, Yes, wee should enter European market.
French market should be selected
The Expected profits is $302,000