Answer: $10,000
Step-by-step explanation:
Given the following :
Profit if economy remains strong = $30,000
Profit if economy grows at moderate pace = $10, 000
Loss if economy goes into recession = $30,000
Probability that economy will remain strong = 20% = 0.2
probability the economy will grow at a moderate pace = 70% = 0.7
probability the economy will slip into recession = 10% = 0.1
Expected value = sum of (x * p(x))
Here expected value equals;
Strong economy profit = $30,000 * 0.2 = $6000
Moderate economy profit = $10,000 * 0.7 = $7000
Loss on Recession = $30,000 * 0.1 = $3000
Expected profit = $(6000 + 7000 - 3000)
Expected profit = $10,000
