Question

A commercial building contractor is trying to decide which of two projects to commit her company to. Project A will yield a profit of $50,000 with a probability of 0.6, a profit of $80,000 with a probability of 0.3, and a profit of $10,000 with a probability of 0.1. Project B will yield a profit of $100,000 with a probability of 0.1, a profit of $64,000 with a probability of 0.7, and a loss of $20,000 with a probability of 0.2. Find the expected profit for each project. Based on expected values, which project should the contractor choose? OA. O B. Project A: $46,666 Project A: $55,000 Project B: $50,800 Contractor should choose project A Project B: $48,000 Contractor should choose project A O C. Project A: $55,000 O D. Project A: $46,000 Project B: $58,800 Contractor should choose project B Project B: $50,800 Contractor should choose project B

Answer 1

Project A: $55,000 Project B: $50,800 Contractor should choose project A

Explanation:

The expected value of the project is the sum of products of profit and its probability:

In thousands, ...

A: (50×0.6) +(80×0.3) +(10×0.1) = 30 +24 +1 = 55 . . . thousand

B: (100×0.1) +(64×0.7) +(-20×0.2) = 10 +44.8 -4 = 50.8 . . . thousand

__

The contractor should choose Project A based on the expected value of profit.