Question

10) An architect is considering bidding for the design of a new shopping mall. The cost of drawing plans

and submitting a model is $10,000. The probability of being awarded the bid is 0.09, and anticipated

profits are

$100,000, resulting in a possible gain of this amount minus the $10,000 cost for plans and a

model. What is the expected value in this situation? Answers without any work shown will

receive no credit.

A) $8000

B) $9000

C) -$1000

D) $8100

Answer 1

-$1000

Explanation:

Given that:

Possible gain = 100,000 - 10,000 = 90,000

Loss =. 10,000 = cost of model submission

P(being awarded) = 0.09

P(not being awarded). = 1 - 0.09 = 0.91

X : 90000 _____ - 10,000

P(x) : 0.09 _______ 0.91

Expected value :

Σx*p(x) = (90000*0.09) + (-10,000 * 0.91)

= 8100 - 9100

= - 1000