Question 811719: An architect is considering bidding for the design of a new theater. The cost of drawing plans and submitting a model is $15,000.The probability of being awarded the bid is 0.2,and anticipated profits are $80,000,resulting in a possible gain of this amount minus the $15,000 cost for plans and models. What is the expected value if the architect decides to bid for the design? Describe what this value means.
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! An architect is considering bidding for the design of a new theater. The cost of drawing plans and submitting a model is $15,000.The probability of being awarded the bid is 0.2,and anticipated profits are $80,000,resulting in a possible gain of this amount minus the $15,000 cost for plans and models. What is the expected value if the architect decides to bid for the design? Describe what this value means.
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Random "gain":: -15000......65,000
Probabilities::....0.2.........0.8
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Expected "gain" = 0.2*-15000 + 0.8(65000) = $49,000
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Meaning:: If he bids he can expect to gain $49,000
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Cheers,
Stan H.
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