John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000. If he does expand, there is a 30 percent chance he will earn $100,000, a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000. It will cost him $150,000 to expand. To make the best decision, John should compare:
A. the difference in expected earnings if he does or does not expand to the cost of expansion.
B. the expected value of his earnings if he expands to the cost of expansion.
C. the expected value of his earnings if he doesn't expand with the expected value of his earnings if he does expand.
D. None of these statements is true.
Answer: A
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