Solution Found!
A construction company is planning to bid on a building contract. The bid costs the
Chapter 11, Problem 6(choose chapter or problem)
A construction company is planning to bid on a building contract. The bid costs the company $1500. The probability that the bid is accepted is \(\frac{1}{5}\). If the bid is accepted, the company will make $40,000 minus the cost of the bid. Find the expected value in this situation. Describe what this value means.
Questions & Answers
QUESTION:
A construction company is planning to bid on a building contract. The bid costs the company $1500. The probability that the bid is accepted is \(\frac{1}{5}\). If the bid is accepted, the company will make $40,000 minus the cost of the bid. Find the expected value in this situation. Describe what this value means.
ANSWER:
Step 1 of 2:
Cost of the bid:$1500
Revenue from the bid:$40,000
Profit: \(40,000-1500=\$ 38500\)
Probability that the company will win the bid:P(B)
\(P(B)=\frac{1}{5}\)