A construction company has been hired to build a custom home. The builder estimates the probabilities...
A construction company has been hired to build a custom home. The builder estimates the probabilities of potential profit (or loss) as shown in the table below. What is the profit expectation for the company?
| Profit/Loss | Probability |
|---|---|
| $100,000 | 0.10 |
| $60,000 | 0.25 |
| $30,000 | 0.35 |
| 0 | 0.20 |
| −$20,000 | 0.08 |
| −$40,000 | 0.02 |
Homework Answers
E(X) = 
X * P(X)
= 100000 * 0.10 + 60000 * 0.25 + 30000 * 0.35 + 0 * 0.20 - 20000 * 0.08 - 40000 * 0.02
= 33100
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