Tracy Johnson produces and promotes outdoor rock concerts throughout the summerm

Question

Tracy Johnson produces and promotes outdoor rock concerts throughout the summermonths in southeastern United States. This summer she has numerous concertsscheduled on different dates. The main threat to the success of these concerts is rain. If itdoes not rain, then Tracy, the producer, expects to make a profit of $20,000 from each
concert. If it does rain, then she will lose $12,000 ( rock star’s fees, advertising costs,
stadium rental, administrative costs, etc.). For this time of year the National Weather Service states that the probability of rain is 0.4

1. Find the producer’s expected profit per concert. Explain and interpret what this number means.

Explanation / Answer

Probablity of rain = 0.4

Profit if doesn't rain = 20,000

Profit if it rains = 12000loss = -12,000

producer’s expected profit per concert = 0.4(-12000)+0.6(20,000) = 7200

expected profit of 7200 means that his expected profit is positive and his average gain per concert is 7200

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