Chad operated an automobile sales business. A major dealer in town offered Chad a one-time opportunity to help them sell some “trade-ins.” Under this deal (see table in the attached file), Chad could take one used car at a time from the dealer and try to sell it. If he sold it, he could take another. There were three cars they wanted Chad to try to sell. The Dealer concluded the offer as follows:“Chad, we have not dealt with you before so we plan to proceed cautiously: I’m sure you understand. If you accept this deal, you must take the compact first. If you sell the compact, then you can choose either of the other two, or you can end the deal. If you sell the second car, then you can take the third if you wish.” Please only enter an integer if a numerical answer is required.

Car Chad's Commission (on Sale) Chad's Selling Costs Chad's Estimate of Probability of Sale

Compact 900 600 3/4

Standard 1,500 200 2/3

Luxury 3,000 600 50/50

1. Chad's expected return on selling the Compact car is .

2. Chad's expected profit from selling the Compact car is .

3. Chad's expected return from selling the Standard car is .

4. Chad's expected profit from selling the Standard car is .

5. Chad's expected profit from selling the Luxury car is .

6. Chad should take this offer because his expected return is positive.

True

False

7. After selling the first Compact car, Chad should choose to sell the __________ car first.

A. Standard

B. Luxury