A young graduate from Kwadaso Agric College plans to invest in one of two animal farming business with a Ghc 1 million loan sourced from Ecobank. Investing in Pig farming will have an estimated cost Ghc280,000 while the poultry business will cost Gh300,000. The year end demand (tons) of animal products from the two farms and their respective probabilities are shown in the Table below.A ton of animal product from the pig farm and poultry farm will be sold for Ghc15 and Ghc20 respectivelyPig farmingPoultry farmingDemand (tons)ProbabilityDemand (tons)Probability260000.15700000.1450000.2600000.2400000.3250000.3200000.2300000.2120000.15450000.2What is the expected profit from the pig farming business? Ghc Blank 1. Fill in the blank, read surrounding text.
Question
A young graduate from Kwadaso Agric College plans to invest in one of two animal farming business with a Ghc 1 million loan sourced from Ecobank. Investing in Pig farming will have an estimated cost Ghc280,000 while the poultry business will cost Gh300,000. The year end demand (tons) of animal products from the two farms and their respective probabilities are shown in the Table below.A ton of animal product from the pig farm and poultry farm will be sold for Ghc15 and Ghc20 respectivelyPig farmingPoultry farmingDemand (tons)ProbabilityDemand (tons)Probability260000.15700000.1450000.2600000.2400000.3250000.3200000.2300000.2120000.15450000.2What is the expected profit from the pig farming business? Ghc Blank 1. Fill in the blank, read surrounding text.
Solution
To calculate the expected profit from the pig farming business, we first need to calculate the expected demand in tons and then multiply it by the selling price per ton, and finally subtract the cost of investment.
The expected demand (D) is calculated by multiplying each demand scenario by its probability and then summing these up. For pig farming, this would be:
D = (26000 * 0.15) + (50000 * 0.26) + (40000 * 0.32) + (30000 * 0.21) + (20000 * 0.15) D = 3900 + 13000 + 12800 + 6300 + 3000 D = 40000 tons
The revenue (R) from selling the pig products is the expected demand multiplied by the selling price per ton:
R = D * Selling price R = 40000 * Ghc15 R = Ghc600,000
The profit (P) is the revenue minus the cost of investment:
P = R - Cost P = Ghc600,000 - Ghc280,000 P = Ghc320,000
So, the expected profit from the pig farming business is Ghc320,000.
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