41) A commercial building contractor is trying to decide which of two projects t

Question

41) A commercial building contractor is trying to decide which of two projects to commit her company to. Project A will yield a profit of $50,000 with a probability of 0.6, a profit of $82,000 with a probability of 0.3, and a profit of $10,000 with a probability of 0.1. Project B will yield a profit of $100,000 with a probability of 0.1, a profit of $67,000 with a probability of 0.7, and a loss of $20,000 with a probability of 0.2. Find the expected profit for each project. Based on expected values, which project should the contractor choose? A) Project A:$55,600 B) Project A: $55,600 Project B: $52,900 Contractor should choose project A Project B: $60,900 Contractor should choose project B C) Project A: $46,600 D) Project A: $47,333 Project B: $52,900 Contractor should choose project B Project B: $49,000 Contractor should choose project A

Explanation / Answer

Expected value of project A = 50,000x0.6 + 82,000x0.3 + 10,000x0.1

= $55,600

Expected value of project B = 100,000x0.1 + 67,000x0.7 - 20,000x0.2

= $52,900

Contractor should chose project A

(Option A)

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