Answer:
The owner's total profit is $120,000.
Step-by-step explanation:
Assume that:
<em>X</em>₁ = contract is assigned to firm 1
<em>X</em>₂ = contract is assigned to firm 2
The sample space for assigning the two contracts is:
S = {(I, I), (I, II), (I, III), (II, I), (II, II), (II, III), (III, I), (III, II) and (III, III)}
There are total of 9 possible combinations.
So, the probability of selecting any of the combination is, 1/9.
Compute the probability distribution of <em>X</em>₁ and <em>X</em>₂ as follows:
<em>X</em>₁ P (<em>X</em>₁) <em>X</em>₂ P (<em>X</em>₂)
0 4/9 0 4/9
1 4/9 1 4/9
2 1/9 2 1/9
Compute the expected values of <em>X</em>₁ and <em>X</em>₂ as follows:
It is provided that each contract will yield a profit of $90,000.
Compute the owner's total profit as follows:
Thus, the owner's total profit is $120,000.