A contractor is considering a sale that promises a profit of $40,000 with a probability of 7 or a loss(due to bad weather, strikes, and such) of $3000 with a probability of 3. What is the expected profit?
To calculate the expected profit, we can multiply each possible profit by its corresponding probability and then sum them up.
Expected Profit = (Profit 1 * Probability 1) + (Profit 2 * Probability 2)
Profit 1 = $40,000
Probability 1 = 7/10
Profit 2 = -$3,000 (negative sign indicates a loss)
Probability 2 = 3/10
Expected Profit = ($40,000 * 7/10) + (-$3,000 * 3/10)
Expected Profit = $28,000 - $900
Expected Profit = $27,100