Activity 6

You are an economist for a U.S. Manufacturer, who is considering expanding sales into Europe. Your market research has identified the market potential in France, Italy, and Spain as described next:

Success Level                France                                 Italy                                          Spain

                         Probability        Units                 Probability        Units                 Probability        Units

Big                    0.3                   1,000,000         0.4                   900,000             0.4                   700,000

Mediocre          0.3                   600,000            0.4                   700,000             0.3                   300,000

Failure              0.4                     0                     0.2                     0                      0.3                       0

The product sells for $12 and has unit costs of $10.

If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $300,000, should you enter one of these markets? If so, which one? If you enter, what is your expected profit?