Explanation Given: The first project yields a profit of $ 180 , 000 and $ 150 , 000 with probabilities 0.7 and 0.3 . The second project yields a profit of $ 220 , 000 and $ 80 , 000 with probabilities 0.6 and 0.4 . Approach: The expected value of X , denoted by E ( X ) is given by, E ( X ) = x 1 p 1 + x 2 p 2 + ........ + x n p n Here, x 1 , x 2 , ........ , x n are the values of random variable X with associated probabilities p 1 , p 2 , ....... , p n respectively. Calculation: Let X denote the profit from the first project. Find the expected profit from the first project. E ( X ) = x 1 p 1 + x 2 p 2 = ( $ 180 , 000 ) P ( X = $ 180 , 000 ) + ( $ 150 , 000 ) P ( X = $ 150 , 000 ) = ( $ 180 , 000 ) ( 0

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ISBN: 9780100478183

Author: Tan

Publisher: YUZU

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Chapter 8.2, Problem 20E

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The project to be chosen by the proprietor with maximum profit.

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Chapter 8.2, Problem 19E

Chapter 8.2, Problem 21E

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The project to be chosen by the proprietor with maximum profit.

Solution Summary: The author explains that the proprietor should choose the first project with maximum profit. The second project yields a profit of 220,000 and 80,000.

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To find:

The project to be chosen by the proprietor with maximum profit.