Economics For Healthcare Managers
Economics For Healthcare Managers
4th Edition
ISBN: 9781640550483
Author: Robert H. Lee
Publisher: Health Administration Pr
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Chapter 4, Problem 1E
To determine

Calculate the expected payoff and its variance.

Expert Solution & Answer
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Explanation of Solution

The expected payoff is the average, which can be calculated as follows:

Expected payoff=Sum of the earningsTotal number of people

The total number of people is 10. Among them, 5 of them earn zero, four of them earn $100, and one loses $100. Thus, the total earnings will be $300. Thus, expected payoff can be calculated as follows:

Expected payoff=30010=30

Thus, the expected payoff is 30.

The variance can be calculated using the formula given below:

Variance=P×(EarningsExpected payoff)2

The variance can be calculated as follows:

Variance=(0.5×(030)2)+(0.4×(10030)2)+(0.1×(10030)2)=450+1960+1690=4100

Thus, the variance is 4100.

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