MA90 Problem: Expected Values (Payoff Tables) - AMC Corporation

MA90 Problem: Expected Values (Payoff Tables) - AMC Corporation

AMC Corporation is introducing a new product, and must decide on a selling price. The variablecost per unit is $5.60. Senior management has narrowed the pricing alternatives to two choices:$14.50 or $8.20 per unit. Management estimates sales levels and the probability of attainingthese levels as follows:Selling price of $8.20:Units Probability15,000 5%10,000 85%8,000 10% Selling price of $14.50:Units Probability4,700 5%3,800 65%2,600 30% As the volume levels noted above are in the relevant range, fixed costs remain constantregardless of the selling price chosen.Required:1. Using a payoff table, calculate the optimal price AMC Corporation should charge.2. Restate part 1 using a decision tree