Question

The proprietor of Midland Construction Company has to decide between two projects. He estimates that the first project will yield a profit of $170,000 with a probability of 0.7 or a profit of $130,000 with a probability of 0.3; the second project will yield a profit of $230,000 with a probability of 0.7 or a profit of$80,000 with a probability of 0.3.

Find the expected profit for each project.

first project = ?
second project = ?

Answer 1

Answer: Expected profit for first and second project are $158000 and $185000 respectively.

Explanation:

Since we have given that

First project :

a profit of $170,000 with a probability of 0.7 or a profit of $130,000 with a probability of 0.3

0.7 $170000

0.3 $130000

So, Expected profit would be

`E[x]=\sum xp(x)=0.7* 170000+0.3* 130000=\$158000`

Second project:

a profit of $230,000 with a probability of 0.7 or a profit of$80,000 with a probability of 0.3.

0.7 $230000

0.3 $80000

So, Expected profit would be

`E[x]=\sum xp(x)=0.7* 230000+0.3* 80000=\$185000`

Hence, expected profit for first and second project are $158000 and $185000 respectively.