Phil Dunphy, a real estate agent, is considering whether he should list an unusual $886,377 house for sale. If he lists it, he will need to spend $4,961 in advertising, staging, and fresh cookies. The current owner has given Phil 6 months to sell the house. If he sells it, he will receive a commission of $15,342. If he is unable to sell the house, he will lose the listing and his expenses. Phil estimates the probability of selling this house in 6 months to be 41%. What is the expected profit on this listing?
To calculate the expected profit on this listing, we need to consider the potential profit and loss scenarios.
1. Selling the house:
If Phil is able to sell the house within 6 months, he will earn a commission of $15,342. However, he will need to deduct the expenses of $4,961 that he spent on advertising, staging, and fresh cookies.
2. Not selling the house:
If Phil is unable to sell the house within 6 months, he will lose the listing and his expenses of $4,961.
To calculate the expected profit, we need to multiply the potential outcomes by their respective probabilities and then subtract the potential losses.
Probability of selling the house within 6 months: 41% or 0.41
Probability of not selling the house: 100% - 41% = 59% or 0.59
Expected profit = (Probability of selling * (Profit from selling - Expenses)) + (Probability of not selling * (-Expenses))
Expected profit = (0.41 * ($15,342 - $4,961)) + (0.59 * (-$4,961))
Calculating this equation will give us the expected profit on this listing.
Note: It's important to remember that this calculation assumes the probabilities provided are accurate and that all other factors remain constant.
To calculate the expected profit on this listing, we need to consider the potential profit from selling the house and the potential loss if the house is not sold.
1. Calculate the potential profit from selling the house:
Potential profit = Commission - Expenses
Potential profit = $15,342 - $4,961
Potential profit = $10,381
2. Calculate the potential loss if the house is not sold:
Potential loss = Expenses
Potential loss = $4,961
3. Calculate the expected profit by multiplying the potential profit by the probability of selling the house:
Expected profit = Potential profit * Probability of selling
Expected profit = $10,381 * 0.41
Expected profit = $4,253.21
Therefore, the expected profit on listing this unusual house for sale is $4,253.21.