## 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?

1. JayDS

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

@apoorvk can you verify? ;D

3. monroe17

11,700 is an option too. A \$11,700 B \$12,000 C \$13,000 D \$3,000

4. apoorvk

@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

Save me Callisto:D

6. monroe17

hmm, anything? :)

7. apoorvk

@ash2326 to the rescue!

8. monroe17

lol!

9. JayDS

LOL, lets call everyone lmao.

10. monroe17

Lets DO IT! ;) I feel like this question isn't even really that hard though?

11. apoorvk

12. experimentX

expected value of what??

13. Callisto

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

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

Thank you:)

16. Callisto

Welcome. Sorry I had some other things to do and was not able to reply.

17. monroe17

no worries!

18. Callisto

Thanks.