Mme. Giselle’s boutique in Cleveland, Ohio, is planning to sell Parisian frocks.
ID: 2441068 • Letter: M
Question
Mme. Giselle’s boutique in Cleveland, Ohio, is planning to sell Parisian frocks. If the public views them as the “latest fashion trend,” the frocks are worth $10,000 each. However, if the public views them as something nice but not a major fashion trend, the smocks sell for $2,000 each. If the probability that they’re viewed as a major fashion trend is 20%, what is the expected value of the frocks? What if uncertainty is nearly 80%? Now, let’s take this further. Is this a risky situation, and what can Mme. Giselle do to reduce risk? Please be specific. Show your work.
Explanation / Answer
The expected value of the frocks= (probability of stylish* worth)+(probability of passe* worth)
=20%*10000+(1-20%)*2000
=3600
the above is the answer