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In exercise 2 in the Open tuition pack in this section, the EV of each outcome is calculated by applying the probability of demand to the sum of the contribution from the contract and regular demand. Why do we not only multiply the regular demand sales by the probability seeing as the contract sales will be fixed regardless and will not be affected by the probability of different demand levels?
Hi,
Thanks for your post.
Im not quite sure what you mean – however, this example is worked through in our video series:https://opentuition.com/cima/cima-p1/cima-p1-risk-uncertainty-expected-values/
I hope this helps
Many Thanks
Cath
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