A Chemical Company Is in the Process of Studying Two

Essay

A chemical company is in the process of studying two long-term plans. The first plan involves expansion of their industrial division. The second plan emphasizes expansion in the business of consumer pharmaceuticals. Market research reveals the following (preliminary) results (returns are in $ millions):
$\begin{array}{c}\text {INDUSTRIAL}\\\text {EXPANSION}\\\begin{array}{cc}\text { PROBABILITY } & \text { PROFITS } \\0.3 & 10 \\0.3 & 15 \\0.4 & 20\end{array}\end{array}$ $\begin{array}{c}\text { PHARMACEUTICALS }\\\begin{array}{cc}\text { PROBABILITY} &\text {PROFITS }\\0.2 & 0 \\0.3 & 10 \\0.3 & 20 \\0.2 & 40\end{array}\end{array}$ The planning committee has the (risk averse) utility function U = 10M - 0.05M2. Discuss the long-term planning decision based on the preliminary predictions and the given utility function: