Question

1. A construction company is planning to bid on a building contract. The
bid costs $1,500 and has an 80% chance of being accepted. If accepted,
the company will receive $40,000 dollars. Find the expected value.​

Answer 1

Answer:

The expected value of construction company is $30500.

Solution:

Given, A construction company is planning to bid on a building contract.  

The bid costs $1,500 and has an 80% chance of being accepted.  

If accepted, the company will receive $40,000 dollars.  

We have to find the expected value.

We know that,  

Expected value = probability $\times$ amount gained by bidding – bid amount

Expected value = 80% x 40000 – 1500

Expected value = 0.8 x 40000 – 1500

Expected value = 32000 – 1500

Expected value = 30500

Hence, the expected value is $30500.