Option A gives a certain profit of $50,000. Option B gives a profit of $120,000 if demand is strong and a loss of $20,000 if demand is weak. Above what probability of strong demand would Option B have the higher expected value?

Correct answer: C) 0.50

Explanation

Let p be the probability of strong demand. EV of B = 120,000p - 20,000(1 - p) = 140,000p - 20,000. Setting this equal to 50,000 gives 140,000p = 70,000, so p = 0.50. Above this probability, B's expected value exceeds the certain $50,000.