Question

A contractor is considering a project that promises a profit of $46,000 with a probability of 0.7, or a loss (due to bad weather, strikes, and such) of $12,000 with a probability of 0.3.

If many projects have these same probabilities and costs, how much should the contractor expect to earn on average per contract?

Answer 1

$28,600

Explanation:

Probably of 0.7 = 46000

Probability of 0.3 = 12000

The average profit = Sum of (x*Pr(x)

=0.7(46000) + 0.3(-12000)

= 32200 - 3600

= $28,600

The contractor should expect to earn $28,600 on the average