Question

A construction company is planning to bid on a building contract. The bid costs the company ​$1100. The probability that the bid is accepted is 2 5. If the bid is​ accepted, the company will make ​$26,500 minus the cost of the bid

Answer 1

The expected profit for the construction company placing a $1100 bid for a contract with a 2/5 probability of acceptance and a potential profit of $26,500 is $9,500.

Step-by-step explanation:

To calculate the expected profit for the construction company's bid, we need to consider both scenarios: if the bid is accepted and if the bid is not. The company will either lose the bid cost of $1100 or gain $26,500 minus the bid cost.

The expected profit E(X) can be calculated as follows:

• Probability of bid accepted = 2/5
• Profit if accepted = $26,500 - $1100 = $25,400
• Profit if not accepted = -$1100
• Expected profit = (2/5 * $25,400) + (3/5 * -$1100)

We thus calculate:

E(X) = (2/5 * $25,400) + (3/5 * -$1100) = $10,160 - $660 = $9,500

The expected profit if the company places the bid is $9,500.