Assignment:
Philip Musa can build either a large electronics section or a small one in his Birmingham drugstore. He can also gather additional information or simply do nothing. If he gathers additional information, the results could suggest either a favorable or an unfavorable market, but it would cost him $3,000 to gather the information. Musa believes that there is a 50–50 chance that the information will be favorable. If the market is favorable, Musa will earn $15,000 with a large section or $5,000 with a small one. With an unfavorable electronics market, however, Musa could lose $20,000 with a large section or $10,000 with a small section. Without gathering additional information, Musa estimates that the probability of a favorable market is .7. A favorable report from the study would increase the probability of a favorable market to .9. Furthermore, an unfavorable report from the additional information would decrease the probability of a favorable market to .4. Of course, Musa could ignore these numbers and do nothing. What is your advice to Musa?
Provide complete and step by step solution for the question and show calculations and use formulas.