Mathematics · Expected Value Decision Making
Tree Co is considering employing a sales manager. Market research shows that a good sales manager increases profit by 30%, an average one by 20%, and a poor one by 10%. Experience indicates that the company attracts a good sales manager 35% of the time, an average one 45% of the time, and a poor one 20% of the time. The company's normal profits are $180,000 per year and the sales manager's salary is $40,000 per year. Based on the expected value criterion, which of the following is the correct advice for Tree Co?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Do not employ a sales manager as profits are expected to fall by $39,900
- 2Employ a sales manager as profits are expected to increase by $100
- 3Employ a sales manager as profits will increase by $38,700
- 4Do not employ a sales manager as profits are expected to fall by $1,300✓
Correct answer
Do not employ a sales manager as profits are expected to fall by $1,300
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