1. The university is moving forward with the Master of Biotechnology proposal. There remains uncertainty with respect to the level of demand for the program. They must plan for enrolment being 10, 15, 20, 25 or 30 students. For each group of 5 students, fee revenue will total $100,000 ($20,000 per student), but the incremental costs will be $40,000 ($8,000 per student). The costs are incurred based upon the planned capacity whereas the revenue is limited to the demand, or capacity, whichever is less. Their best estimates of the probability of demand are:
a) Construct a payoff table that shows the total profit for each combination of planned capacity and demand.
b) What capacity level will lead to the highest expected profit?