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Hi,
I am looking at question called Keytone Co from the BPP Kit Mock exam 4 (Q32) which is to construct a payoff table. I understand how the workings of the payoff table in part (a) have been worked out, I am just confused with the “Expected value (EV) of profit $”.
For 3000 units its $70,110 for 3500 units it’s $78,385 and for 4000 units is $77,545. Could you help me understand how this has been worked out please?
Thanks
Question 2 is Keytone
Have a look at the examiners article
Let me know if you still need helpHi, thanks I did read that article before posting my question. I still don’t understand how the “EVs of profit” have been worked out in the payoff table, could you help me please?
I will show you an example:
SALES 102,300 (3000 * 34.10) SP – ADMIN = 35-0.9
VC 30750 (3000 * 10.25) DM + LAB + VC = 6.2+2.7+1.35
STE FC 1440 (3000/500 = 6 * 240)TOTAL MAX 3000 = 70110
CAN YOU HAVE A LOOK AT IT AGAIN NOW
Thanks, I understand the payoff table workings it just the TOTAL of “Expected value (EV) of profit”
I just don’t understand where those totals came from of 70,110, 78,385 and 77,545, have they used the probabilities or have they used an average? – Either way I just can’t get it to those amounts.
You take the profit at Max positions
Where supply equals demand
That gives you 70110 for demand 3000; 81795 for 3500 and 85480 for 4000
Then times by the probability gives you the EV with perfect information
Compare to EV from part a
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