Answered

Discover the answers to your questions at Westonci.ca, where experts share their knowledge and insights with you. Ask your questions and receive accurate answers from professionals with extensive experience in various fields on our platform. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

A construction company has bid on a building renovation project. The company estimates the probabilities of potential profit (or loss) as shown in the table below.

| Profit/Loss | Probability |
|-------------|-------------|
| \[tex]$25,000 | 0.20 |
| \$[/tex]15,000 | 0.25 |
| \[tex]$10,000 | 0.20 |
| \$[/tex]5,000 | 0.15 |
| \[tex]$0 | 0.10 |
| -\$[/tex]5,000 | 0.10 |

What is the profit expectation for the company?

Sagot :

GinnyAnswer
To determine the profit expectation for the company, we need to calculate the expected value of the profit (or loss). The expected value is calculated by multiplying each possible profit or loss by its respective probability and then summing these products. Here is a detailed, step-by-step solution:

1. List the potential profits and losses and their corresponding probabilities:

- Profit/Loss: \[tex]$25,000, Probability: 0.20 - Profit/Loss: \$[/tex]15,000, Probability: 0.25
- Profit/Loss: \[tex]$10,000, Probability: 0.20 - Profit/Loss: \$[/tex]5,000, Probability: 0.15
- Profit/Loss: \[tex]$0, Probability: 0.10 - Profit/Loss: -\$[/tex]5,000, Probability: 0.10

2. Calculate the product of each profit/loss and its probability:

- \[tex]$25,000 × 0.20 = \$[/tex]5,000
- \[tex]$15,000 × 0.25 = \$[/tex]3,750
- \[tex]$10,000 × 0.20 = \$[/tex]2,000
- \[tex]$5,000 × 0.15 = \$[/tex]750
- \[tex]$0 × 0.10 = \$[/tex]0
- -\[tex]$5,000 × 0.10 = -\$[/tex]500

3. Sum these products to obtain the expected profit:

[tex]\[ 5,000 + 3,750 + 2,000 + 750 + 0 - 500 = 11,000 \][/tex]

Hence, the profit expectation for the construction company is \$11,000.
Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.