Question

A store specializing in mountain bikes is to open in one of to malls. if the first mall is selected, the store anticipates a yearly profit of $1,500,000 If ucessful and yearly loss of $500,000 otherwise. the probabilitiy of sucess is 1/2. if the second mall is selected, it is estimated that the yearly profit will be $1,000,000 if successful; otherwise, the annual loss will be $300,000. the probability of success at the second mall is 3/4. what is the expected profit for the first mall?

Answer 1

The expected profit for the first mall is calculated by taking the weighted average of the potential profit and loss, based on the probabilities. The expected profit works out to $500,000 when we consider a 50% chance of making $1,500,000 and a 50% chance of losing $500,000.

Step-by-step explanation:

The student is asking about calculating the expected profit for a store specializing in mountain bikes considering probabilities of success and failure in two different malls. To calculate the expected profit for the first mall, we need to multiply the profit or loss by the probability of each outcome occurring and sum these products.

The expected profit (E) for the first mall can be calculated as follows:

• E = (Profit if successful × Probability of success) + (Loss if unsuccessful × Probability of failure)
• E = ($1,500,000 × 1/2) + (-$500,000 × 1/2)
• E = $750,000 + (-$250,000)
• E = $500,000

Therefore, the expected profit for the first mall is $500,000.