document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=579311>Question 579311</A>: <I><SPAN STYLE=\"word-break: break-all;\"> A company estimates that it has 30% chance of being successful in bidding on a $45,000 contract. If it costs $8000 in consultant fees to prepare the bid, what is expected gain or loss for the company if it decides to bid on this contract? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #370931 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=370931\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> the expected value is .30 * 45000 minus 1.00 * 8000.<BR>\n" );
document.write( "this is because they gain 45,000 30% of the time but they lose 8,000 100% of the time because every contract has to be bid on whether they win the contract or lose it.\r<BR>\n" );
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document.write( "what does this mean?\r<BR>\n" );
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document.write( "obviously, it they win the contract,they make 45,000 and deduct 8,000 for a gain of 37,000.\r<BR>\n" );
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document.write( "if they lose the contract, they lose 8,000.\r<BR>\n" );
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document.write( "the expected value assumes many contracts of the same type are being bid on.\r<BR>\n" );
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document.write( "assume there were 1,000 contracts with each contract carrying the same probability.\r<BR>\n" );
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document.write( "they would win 30% of the contracts and they would lose 70% of the contracts.\r<BR>\n" );
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document.write( "since they bid on all of them, they would lose 1,000 * 8,000 = 8,000,000 dollars.<BR>\n" );
document.write( "since they win 30% of them, they would gain 300 * 45,000 = 13,500,000 dollars.<BR>\n" );
document.write( "their net gain would be 13,500,000 - 8,000,000 = 5,500,000.<BR>\n" );
document.write( "divide that by 1,000 and their average net gain per contract bid on would be equal to 5,500.<BR>\n" );
document.write( "this is the same as the expected value calculated above.\r<BR>\n" );
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document.write( " </SPAN>\n" );
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