The Walker Construction Company has just received a building contract. Walker estimates there is a 60% chance of making a $500,000 profit, a 10% chance of breaking even, and 30% chance of losing $200,000, depending upon weather conditions and other factors. What is the expected value of the company's contract?
The Walker Construction Company has just received a building contract. Walker estimates there is a 60% chance of making a $500,000 profit, a 10% chance of breaking even, and 30% chance of losing $200,000, depending upon weather conditions and other factors. What is the expected value of the company's contract?
Chapter9: Sequences, Probability And Counting Theory
Section9.7: Probability
Problem 1SE: What term is used to express the likelihood of an event occurring? Are there restrictions on its...
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The Walker Construction Company has just received a building contract. Walker estimates there is a 60% chance of making a $500,000 profit, a 10% chance of breaking even, and 30% chance of losing $200,000, depending upon weather conditions and other factors. What is the
Expert Solution
Step 1
Let us assume X= amount of profit
Breakeven means no profit.
Let us make a probability distribution for X
| Amount of profit (xi) | 500000 | 0 | -200000 |
| Probability (pi) | 0.60 | 0.10 | 0.30 |
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