Question

A businessman bought a car dealership that is incurring a loss of $500,000 a year. He decided to strategize in order to turn the business around. In addition to the $500,000 annual loss, his fixed cost for running the dealership on a monthly basis is $5,000. The number of cars sold per week and their probabilities mimic the outcomes of three coins being flipped. The number of cars sold in a week was observed to be the same as the number of tails that appear when three coins are flipped. See the distribution:

What is the expected number of cars sold in one week?
a.1
b.1.5
c.2
d.2.5

Answer 1

B. 1.5

Explanation:

The distribution is 1/8 chance for 0 cars to be sold, 3/8 chance for 1 car to be sold, 3/8 for 2 cars, 1/8 for 3 cars.

1/8 is equal to 0.125 and 3/8 is 0.375.

So the formula would be:

(0.125 x 0) + (0.375 x 1) + (0.375 x 2) + (0.125 x 3) = 1.5

Answer 2

The correct answer would be choice A: 1.

When 3 coins are flipped, there are 8 possible outcomes.

0 Tails = 1 ways
1 Tails = 3 ways
2 Tails = 3 ways
3 Tails = 1 ways

If you add up all the different tails, you could get 12 tails. Divide 12 by 8 and you have 1.5 which is the average number of tails you could expect to get by flipping 3 coins.