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    I have been trying to solve this question for the past few hours and cannot find the answer.

    I know the expected profit is 4575 but the answer I get for the second part is 5450-4575=875 which is apparently not right as it is not listed as an answer. Please help!


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    For the second part, what I would do is say, that a prediction would only be useful if there's low demand, since that's the only time they would make more money by selling the license of the product. If it's a low demand, they would make £5000 more by selling the license vs manufacturing it themsleves. The chance of a low demand is 0.25. So I would do 5000 * 0.25 = 1250. Is £1250 an option?
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    Oh, that's how you do it! Thank you so much, I've been fretting over this for the past day, never got taught to do this. Thanks again.
 
 
 
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