Question

A manufacturer is considering the manufacture of a new and better mousetrap. She estimates 7 the probability of the new mousetrap is successful is 8. If it is successful it would generate profits of $120,000. the development costs for the new mousetrap are $98,000. The manufacturer is going to proceed because she has calculated a profit. What is the correct profit for this new mousetrap? O a $5,500 O b $7,000 O с $6,500 O d $6,000 O e $8.000 Of $5,000 0 g $4.500 O h $10,500 $9,000

Answer 1

The correct profit for the new mousetrap is calculated by multiplying the probability of success (7/8) by the potential profit ($120,000), which gives us the expected profit of $105,000. After subtracting the development costs ($98,000), the net profit comes out to be $7,000.

Step-by-step explanation:

The student is asking to calculate the expected profit of a new mousetrap considering the probability of its success and the profits and costs associated with it. To find the expected profit, we multiply the probability of success by the profit if successful, then subtract the development costs.

The probability of success is 7/8, and the profit if successful is $120,000. Therefore, the expected profit from the success of the mousetrap would be (7/8) * $120,000 = $105,000.

After calculating the expected profits, we subtract the development costs of $98,000 to find the net profit. Hence, the net profit would be $105,000 - $98,000 = $7,000.

Thus, the correct profit for the new mousetrap is $7,000, which corresponds to option (b).