A plant manager wants to know, based on investing in market research, what his overall payout would be. Currently he is evaluating two choicesto expand the current plant or subcontract work out. There are two things that can happen in the economy; it can be favorable or not. Under favorable market conditions the manager would make $75,000 for the expansion and $5,000 utilizing subcontracting as an option. Under unfavorable market conditions the expansion would lose $50,000 and by subcontracting make $3,500. For each alternative the cost of the research is $2,500. If the two states of nature are equally likely to occur, answer the following questions: a. What is the EMV for expanding?
b. What is the EMV for subcontracting?
c. What decision should be made based on the overall profit/loss?