Question 570867: A company brings a new product to market:
The probability of loosing $1,000,000 is 10%
The probability of loosing $500,000 is 20%
The probability of breaking even is 20%
The probability of making $500,000 profit is 20%
The probability of making $2,000,000 profit is 30%
what is the expected profit?
I can calculate this ((2,000,000*.3)+(500000*.2)) - ((1,000,000*.1)+(500,000*.2))
yields 700,000-200000 = $500,000 expected profit. but im not sure how to handle the 20% probability of breaking even, 0 * 20% = 0? how is this factored in to my calculations?
Answer by richard1234(7193)   (Show Source):
You can put this solution on YOUR website! Do it just like you did with the other numbers. Expected value for this problem is defined as the sum of (profit)*(probability of that profit), so with the case of zero profit, you would add 0*.2, or 0. Since your other numbers are correct, you can just add everything and obtain $500,000.
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