Question

A construction company is planning to bid on a building contract. The bid costs the company ​$1400. The probability that the bid is accepted is 1/4. If the bid is​ accepted, the company will make ​$17,600 minus the cost of the bid.

What is the expected value in this​ situation?

Answer 1

$3,000

Explanation:

There two possible outcomes:

There is a 3/4 chance that the bid is rejected for a value of -$1,400

There is a 1/4 chance that the bid is accepted for a value of $17,600 - $1,400.

The expected value of the situation is:

`E = (3)/(4)*(-1,400)+(1)/(4)*(17,600-1,400)\\E=\$3,000`

The expected value is $3,000.