Question

A contractor is considering a sale that promises a profit of $34,000 with a probability of 0.6 or a loss of $11,000 with a probability of 0.4. What is the expected profit?

Answer 1

The expected profit for the contractor is calculated by taking the sum of each potential outcome multiplied by its probability, resulting in an expected profit of $16,000.

Step-by-step explanation:

The expected profit can be found by multiplying each outcome by its probability and summing up the results. In this scenario, we have a profit of $34,000 with a probability of 0.6 and a loss of $11,000 with a probability of 0.4. So, the expected profit is calculated as follows:

(Profit × Probability of Profit) + (Loss × Probability of Loss) = ($34,000 × 0.6) + (-$11,000 × 0.4).

Therefore, the expected profit is:

($34,000 × 0.6) + (-$11,000 × 0.4) = $20,400 + (-$4,400) = $16,000.

The expected profit for the contractor is $16,000.