Question 666525: Essay; show all work. The property restoration company PuroServ is considering switching to new dehumidifiers. Their market research, considering the cost of the new machines and their efficiency, tells them that the switch would give them an 80% chance of making a $20,000 profit, a 15% chance of breaking even, and a 5% chance of losing $5,000. How much money does PuroServ expect to make with their new purchase?
Answer by kevwill(135)   (Show Source):
You can put this solution on YOUR website! To find their expected outcome, take each possible outcome, multiply it by the probability of that outcome, then sum all the resulting values.
We are given
p(+$20,000) = 80% = 0.80
p($0) = 15% = 0.15
p(-$5,000) = 5% = 0.05
Multiplying each outcome by its probability:
$20.000 * 0.80 = $16,000
$0 * 0.15 = $0
-$5,000 * 0.05 = -$250
Summing these gives $15,750.
PuroServ should expect a profit of $15,750 on the purchase.
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