An architect is considering bidding for the design of a new museum. The cost of

Question

An architect is considering bidding for the design of a new museum. The cost of drawing plans and submitting a model is $14,000. The probability of being awarded the bid is 0.2 and anticipated profits are $70,000, resulting in a possible gain of this amount minus the $14,000 cost for plans and a model.

1.) What is the expected value in this situation? Round to the nearest dollar.

2.) Choose the statement below that best describes what this value means.

A. In the long run, the architect would expect to break even.

B. In the long run, the architect would expect to earn this amount.

C. In the long run, the architect would expect to lose this amount.

D. None of the above.

Explanation / Answer

1) loses bid: -14,000*0.8 = (-)$11,200
wins bid: 70,000*0.2 - 14000 = $0
E[x] = (-)$11,700

2) From the Above, we get the answer as C

C. In the long run, the architect would expect to lose this amount.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.