Question

The EZ Construction Company is offered a ​$20 comma 000 contract to build a new deck for a house. The​ company's profit if they do not have to sink piers​ (vertical supports) down to bedrock will be ​$4 comma 000. ​However, if they do have to sink the​ piers, they will lose ​$600. The probability they will have to put in the piers is 10​%. What is the expected value of this​ contract?

Answer 1

Answer:

The contract expected value is 3,540

Explanation:

we multiply each possible outcome by their probability of occur.

sink the piers into bedrock :   (600)  x 10% =      (60)

sink the piers normally:           4,000 x 90% = 3,600

Net                                                                      3,540

It is important to always have all the probabilities add up to 100% in order to this method to work.