The owner of the Petreno Pharmaceutical Company is evaluating the expected annual sales for a new line of facial care products and estimates that there is a 68 percent chance that the product line will be extremely successful, in which case it will generate sales next year of 7.7 million. However, since the new product line has a unique appeal that will require substantial advertising by its manufacturer to gain consumer acceptance, there is a 32 percent chance that revenues for next year will be a modest 1.4 million. What is the expected level of revenues for the new product line? The expected total revenue for the new line of products is $ million (round to two decimal places)

Question

Business

Deanna Fitzpatrick

26 February, 01:19

The owner of the Petreno Pharmaceutical Company is evaluating the expected annual sales for a new line of facial care products and estimates that there is a 68 percent chance that the product line will be extremely successful, in which case it will generate sales next year of 7.7 million. However, since the new product line has a unique appeal that will require substantial advertising by its manufacturer to gain consumer acceptance, there is a 32 percent chance that revenues for next year will be a modest 1.4 million. What is the expected level of revenues for the new product line? The expected total revenue for the new line of products is $ million (round to two decimal places)

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Answers (1)

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Isiah Hess · Answer 1

5.68

Explanation:

Using the formula for total probability:

(first probability) * (first sales) + (second probability) * (second sales)

it follows with

0.68*7.7+0.32*1.4 = 5.68

This number represents the profit (in $ million) which is expected, and is the resulted of the weighted predicted values which were the input in the example. This formula could be used with more statements included, while the total probability sum should never exceed 1.