Question

A contractor is considering a sale that promises a profit of $31,000 with a probability of 0.7 or a loss (due to bad weather, strikes, and such) of $13,000 with a probability of 0.3. What is the expected profit?

Answer 1

To find the expected profit for the contractor, multiply each outcome by its probability and add them together, resulting in an expected profit of $17,800.

Step-by-step explanation:

The question asks to calculate the expected profit for a contractor who has a probability of making a profit of $31,000 with a probability of 0.7, or incurring a loss of $13,000 with a probability of 0.3. To find the expected profit, you multiply each outcome by its respective probability and sum these products.

To calculate:

• Profit: $31,000 × 0.7 = $21,700
• Loss: -$13,000 × 0.3 = -$3,900

Now add the two results to find the expected profit:

$21,700 + (-$3,900) = $17,800.

So, the expected profit is $17,800.