A small software company bids on two contracts. It anticipate a profit of $30,00

Question

A small software company bids on two contracts. It anticipate a profit of $30,000 if it gets the larger contract and a profit of $15,000 if it gets the smaller contract. The company estimates that there is a 27% chance it will get the Larger contract and a 65% chance it will get the smaller contract. If the company does not get either contract, it will neither gain nor lose money. Assume the contracts will be awarded independently, what’s the expected profit? A small software company bids on two contracts. It anticipate a profit of $30,000 if it gets the larger contract and a profit of $15,000 if it gets the smaller contract. The company estimates that there is a 27% chance it will get the Larger contract and a 65% chance it will get the smaller contract. If the company does not get either contract, it will neither gain nor lose money. Assume the contracts will be awarded independently, what’s the expected profit?

Explanation / Answer

Expected profit = sum(profit*probability) = (0.27*30000)+(0.65*15000) = 8100+9750 = $17850.

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