Question

A contractor is considering a sale that promises a profit of $26,000 with a probability of 0.7 or a loss (due to bad weather, strikes,

and such) of $8000 with a probability of 0.3. What is the expected profit? On average, should the contractor expect to make
money or lose money from the sale? (Hint: write this information as a probability distribution table first. Another hint: Is a
LOSS a positive or negative number? Is a PROFIT a positive or negative number?)

Answer 1

Answer: on average, the contractor should expect to make a profit of $18,200 from the sale. A loss is represented as a negative number, and a profit is represented as a positive number.


Explanation:

To create a probability distribution table, we can list the possible outcomes and their probabilities:

| Outcome | Profit/Loss | Probability |
|---------|-------------|-------------|
| Profit | $26,000 | 0.7 |
| Loss | -$8,000 | 0.3 |

To calculate the expected profit, we need to multiply each outcome by its probability and add them up:

Expected profit = (26,000 x 0.7) + (-8,000 x 0.3)
Expected profit = 18,200


Hope this helps