Question

Mamma Temte bakes six pies a day that cost $2 each to produce. On 18% of the days she sells only two pies. On 26% of the days, she sells 4 pies, and on the remaining 56% of the days, she sells all six pies. If Mama Temte sells her pies for $4 each, what is her expected profit for a day’s worth of pies? {assume that the left over pies are given away.

answer choices are
-8$
-7.24$
7.04$
19.04$

Answer 1

(c) $7.04

Explanation:

You want to know Mamma Temte's expected daily profit if she produces 6 pies at a cost of $2 each and sells them at a price of $4 with these probabilities:

• p(2 pies) = 18%
• p(4 pies) = 26%
• p(6 pies) = 56%

Expected revenue

The expected revenue is the sum of products of revenue and its probability:

E(revenue) = 2($4)(.18) +4($4)(.26) +6($4)(.56) = $19.04

Profit

The expected profit is the difference between the expected revenue and the cost:

E(profit) = $19.04 -6($2) = $7.04

Her expected profit for a day's worth of pies is $7.04, choice C.

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