What price maximizes profits

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Reference no: EM13742941

Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for possible future product and estimates that the reservation price – the value to the company to keep it – is $250,000. Your dealings on the second-hand market lead you to believe that there is a 0.4 chance a random buyer will pay $300,000, a 0.25 chance the buyer will pay $350,000, a 0.1 chance the buyer will pay $400,000, and a 0.25 chance it will not sell at all. If you must commit to a posted price, what price maximizes profits?

Reference no: EM13742941

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