On rainy days our business loses $250 and on days it does not rain, we make a profit of $100. There is a 60% chance of rain today. Find the expected value of today's profit.
2007-03-31 14:31:15 · 3 answers · asked by BRICK 1 in Social Science ➔ Economics
40% to make $100
60% chance to lose $250
so, if it were 50/50 the profit would be -$150
so, since it is 60/40 it is -$110
-$110
2007-03-31 14:51:20 · answer #1 · answered by Santa Barbara 7 · 0⤊ 1⤋
I always loved expected value.
60% chance of losing $250 - expected value $150 loss
40% chance of $100 profit - expected value of $40
expected value $40-$150 = $110 loss
2007-03-31 14:52:18 · answer #2 · answered by JuanB 7 · 0⤊ 1⤋
Expected value is all your different possibilities, weighted by their probability (chance) of happening, added together.
So:
60% chance of losing $250 + 40% chance of making $100
(0.6 * -250) + (0.4 * 100) = -150 + 40 = -110
So your expected value of today is $ -110
2007-03-31 15:06:34 · answer #3 · answered by Anonymous · 0⤊ 1⤋