Question

The proprietor of Midland Construction Company has to decide between two projects. He estimates that the first project will yield a profit of $170,000 with a probability of 0.7 or a profit of $130,000 with a probability of 0.3; the second project will yield a profit of $230,000 with a probability of 0.7 or a profit of$80,000 with a probability of 0.3.
Find the expected profit for each project.

first project = ?
second project = ?

Answer 1

Answer: Expected profit for first and second project are $158000 and $185000 respectively.

Step-by-step explanation:

Since we have given that

First project :

a profit of $170,000 with a probability of 0.7 or a profit of $130,000 with a probability of 0.3

0.7      $170000

0.3      $130000

So, Expected profit would be

$E[x]=\sum xp(x)=0.7\times 170000+0.3\times 130000=\ 158000$

Second project:

a profit of $230,000 with a probability of 0.7 or a profit of$80,000 with a probability of 0.3.

0.7      $230000

0.3      $80000

So, Expected profit would be

$E[x]=\sum xp(x)=0.7\times 230000+0.3\times 80000=\ 185000$

Hence, expected profit for first and second project are $158000 and $185000 respectively.