a company has an opportunity to bid on three contracts. determine which would be the best investment given…

a company has an opportunity to bid on three contracts. determine which would be the best investment given the information in the table below.\n\n| contract | profit, probability of profit | probability to break even | loss, probability of loss |\n|--|--|--|--|\n| southeast | $45,000, 50% | 30% | $6,000, 20% |\n| southwest | $60,000, 35% | 40% | $10,000, 25% |\n| california | $112,000, 20% | 40% | $40,000, 40% |\n\no southeast\no southwest\no california\no all contracts include a probability for loss.

a company has an opportunity to bid on three contracts. determine which would be the best investment given the information in the table below.\n\n| contract | profit, probability of profit | probability to break even | loss, probability of loss |\n|--|--|--|--|\n| southeast | $45,000, 50% | 30% | $6,000, 20% |\n| southwest | $60,000, 35% | 40% | $10,000, 25% |\n| california | $112,000, 20% | 40% | $40,000, 40% |\n\no southeast\no southwest\no california\no all contracts include a probability for loss.

Answer

Explanation:

Step1: Calculate expected value for Southeast

The expected - value formula is $E(X)=\sum_{i}x_ip_i$. For Southeast, $E_{Southeast}=(45000\times0.5)+(0\times0.3)+(- 6000\times0.2)=22500 + 0-1200=$21300$.

Step2: Calculate expected value for Southwest

$E_{Southwest}=(60000\times0.35)+(0\times0.4)+(-10000\times0.25)=21000 + 0 - 2500=$18500$.

Step3: Calculate expected value for California

$E_{California}=(112000\times0.2)+(0\times0.4)+(-40000\times0.4)=22400+0 - 16000=$6400$.

Answer:

A. Southeast