A contractor is considering a sale that promises a profit of $30,000 with a probability of .7 or a loss of $4,000 with a probability of .3. What is the expected profit?
The weighted profit is
(30000*0.7+4000*0.3)/(0.7+0.3)=?
To calculate the expected profit, you need to multiply each outcome by its respective probability and then sum up the values. Here's how you can calculate the expected profit in this scenario:
1. Calculate the profit for each outcome:
- Profit from a successful sale = $30,000
- Loss from an unsuccessful sale = -$4,000 (negative value because it represents a loss)
2. Calculate the probability-weighted profit for each outcome:
- Probability-weighted profit from a successful sale = $30,000 * 0.7 = $21,000
- Probability-weighted profit from an unsuccessful sale = -$4,000 * 0.3 = -$1,200
3. Calculate the expected profit by summing up the probability-weighted profits:
- Expected profit = $21,000 + (-$1,200) = $19,800
Therefore, the expected profit for the contractor in this scenario is $19,800.