Ephemeral services corporation (esco) knows that nine other companies besides esco are bidding for a $900,000 government contrac
t. each company has an equal chance of being awarded the contract. if esco has already spent $100,000 in developing its bidding proposal, what is its expected net profit? a. $10,000
Calculation of the expected net profit of Ephemeral services corporation
Since we are been told that 9 other companies besides esco are as well bidding for the $900,000 government contract, it means we have to find the expected net profit by dividing 1 by 9×$900,000 .Thus ESCO can only expect to cover its sunk cost.
Hence ,
E(X) = (1/9) × $900,000
E(X)=0.111111111×$900,000
E(X)= $100,000
Therefore the expected net profit would be $100,000
