Question

Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given next: Possible Market Reaction Sales in Units Probabilities Low response 20 .30 Moderate response 35 .20 High response 45 .20 Very high response 60 .30 a. What is the expected value of unit sales for the new product?

Answer 1

Answer:

The expected value of unit sales for the new product is 40 unit sales.

Explanation:

For computing the expected value, we need to use the formula which is shown below:

Simple formula of expected value equals to

= Sales × Probability

Expected value = Sales units of low response × Probability of low response + Sales units of moderate response × Probability of moderate response + Sales units of high response × Probability of high response + Sales units of very high response × Probability of very high response

= 20 × 0.30 + 35 × 0.20 + 45 × 0.20 + 60 × 0.30

= 6 + 7 + 9 + 18

= 40 unit sales

Hence, the expected value of unit sales for the new product is 40 unit sales.