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monroe17

  • 3 years ago

An architect is considering bidding for the design of a new shopping mall. The cost of drawing plans and submitting a model is $10,000. The probability of being awarded the bid is 0.13, and the anticipated profits are $100,000. What is the expected value in this situation? is it 3000? I did 100,000-10,000=90,000 -10,000(0.87)+90,000(0.13)=3,000?

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  1. JayDS
    • 3 years ago
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    I am not too sure about this but I believe the answer should be $11700? because the expected value of the bidding design of $3000 shouldn't be lower than it's cost and plans. I'm not too sure on this one.

  2. monroe17
    • 3 years ago
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    @apoorvk can you verify? ;D

  3. monroe17
    • 3 years ago
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    11,700 is an option too. A $11,700 B $12,000 C $13,000 D $3,000

  4. apoorvk
    • 3 years ago
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    @monroe17 your explanation and answer seem pretty correct to me, still @Callisto would know probability and stuff better. (Am having trouble regarding 'expected value' means in this context).

  5. monroe17
    • 3 years ago
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    Save me Callisto:D

  6. monroe17
    • 3 years ago
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    hmm, anything? :)

  7. apoorvk
    • 3 years ago
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    @ash2326 to the rescue!

  8. monroe17
    • 3 years ago
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    lol!

  9. JayDS
    • 3 years ago
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    LOL, lets call everyone lmao.

  10. monroe17
    • 3 years ago
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    Lets DO IT! ;) I feel like this question isn't even really that hard though?

  11. apoorvk
    • 3 years ago
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    @experimentX @Diyadiya @dpaInc !!!!!!!!!!!!!!

  12. experimentX
    • 3 years ago
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    expected value of what??

  13. Callisto
    • 3 years ago
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    According to Wiki, Expected value = amount paid x P(lose) + payoff x P(win) = -10000 x (1-0.13) + (100000-10000) x (0.13) = -10000 x 0.87 + 90000 x 0.13 = 3000 If I got the term 'payoff' correct, then that's it. Source: wiki

  14. Callisto
    • 3 years ago
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    The first one is about the probability of loss the game. The second one is about the probability of winning it. But to win it, you have a price to pay. So, you need to subtract it from the amount you get to get the net profit. I guess only.

  15. monroe17
    • 3 years ago
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    Thank you:)

  16. Callisto
    • 3 years ago
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    Welcome. Sorry I had some other things to do and was not able to reply.

  17. monroe17
    • 3 years ago
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    no worries!

  18. Callisto
    • 3 years ago
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    Thanks.

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