(c) The price of a 14 oz cup of coffee in Sunshine cafés is a random variable Cwith an expected value of $3.00 and a standard deviation of $1. At any givenshop, the price doesn't vary, but it varies independently across shops. Tomorrowmorning, you plan to buy two 14 oz cups of coffee from the same shop while yourfriend plans on buying two from two different shops.(i) How much do you expect to spend on coffee tomorrow and with what standarddeviation?(ii) How much do you expect your friend to spend and with what standarddeviation?(iii) Who do you think has a better idea and why?

The term “expected value” is the average value of a discrete random variable or continuous random…

Answered: (i) How much do you expect to spend on…

(i) How much do you expect to spend on coffee tomorrow and with what standard deviation? (ii) How much do you expect your friend to spend and with what standard deviation?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(c) The price of a 14 oz cup of coffee in Sunshine cafés is a random variable C
with an expected value of $3.00 and a standard deviation of $1. At any given
shop, the price doesn't vary, but it varies independently across shops. Tomorrow
morning, you plan to buy two 14 oz cups of coffee from the same shop while your
friend plans on buying two from two different shops.
(i) How much do you expect to spend on coffee tomorrow and with what standard
deviation?
(ii) How much do you expect your friend to spend and with what standard
deviation?
(iii) Who do you think has a better idea and why?

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