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A construction company is planning to bid on a building contract. The bid costs the

Chapter 11, Problem 6

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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.

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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)

\(P(B)=\frac{1}{5}\)

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