Answer: $ 16,000 profit
Step-by-step explanation:
Given the following :
Profit when economy is strong = 50,000
Profit when economy is moderate = 10,000
Loss when economy goes into recession = 50000
Resulting probabilities of the three probable occurrences are:
Probability of strong economy; p(strong) = 30/100 = 0.3
Probability of moderate; P(moderate) = 60/100 = 0.6
Probability of recession; P(recession) = 10/100 = 0.1
Expected profit :
Summation of the product of each probability and its accompanying profit or loss.
P(strong) × profit of strong = 0.3 × 50000 = 15000
P(moderate) × profit of moderate = 0.6 × 10000 = 6000
P(recession) × loss on recession = 0.1 × 50000 = 5000 = - 5000 ( loss)
Expected profit :
$(15,000 + 6000 - 5000) = $16,000 profit
