Question

Salty's Surf Shop loses $35,000 during cold, rainy summers and profits $175,000 during summers that

are hot and dry. The probability that it will be hot and dry during summers is 30%. What is the expected

profit Salty would realize over 10 years?

Answer 1

$280,000

Explanation:

Given that:

Loss during cold = $35000

P(hot and dry) = 30% = 0.3

Hence ; P(cold) = 1 - 0.3 = 0.7

Profit during hot and dry= $175,000

Expected profit over 10 years =?

________Hot & Dry __________ Cold __

X : _______ 175,000 ________ -35,000

P(X) : _______ 0.3 ____________ 0.7

Expected probability (E(X)) = Σx*p(x)

= 0.3(175,000) + 0.7(-35,000)

= 52,500 + (-24,500)

= $28,000

Hence, expected profit over 10 years :

$28,000 * 10 = $280,000