Answer (C) is correct . Expected value analysis is a means of selecting the best option when decisions involve risk. The expected value equals the sum of the products of the ? various payoffs and their respective probabilities. Stan Berry can calculate the expected value of each of his four possible actions as follows: Bags Expected Stocked Value 20:0.2($20) +0.4($20) +0.3($20) +0.1($20) = $20.00;30:0.2($18) +0.4($30) +0.3($30) +0.1($30) = 27.60 40:0.2($16) +0.4($28) +0.3($40) +0.1($40) = 30.40;50:0.2($14) +0.4($26) +0.3($38) +0.1($50) = 29.60.The action with the highest expected payoff is to stock 40 bags.
Answer (A) is incorrect because The figure of 20 units does not have the greatest expected value.
Answer (B) is incorrect because The figure of 30 units does not have the greatest expected value.
Answer (D) is incorrect because The figure of 50 units does not have the greatest expected value.
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