Due to uncertain economic conditions the owners of an independent bookstore estimate the following probabilities for moderate growth, the status quo and recession for next year and their associated profits for each scenario. What is their expected profit for next year?
(Imagine this as a table)
Growth, Probability, Estimated Profit
Moderate Growth, 0.35, $250,000
Status Quo, .45, $200,000
Recession, .20, $100,000
Stacey Warren - Expert brainly.com
Hey! We 've verified this expert answer for you, click below to unlock the details :)
At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis praesentium voluptatum deleniti atque corrupti quos dolores et quas molestias excepturi sint occaecati cupiditate non provident, similique sunt in culpa qui officia deserunt mollitia animi, id est laborum et dolorum fuga.
Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere possimus, omnis voluptas assumenda est, omnis dolor repellendus.
Itaque earum rerum hic tenetur a sapiente delectus, ut aut reiciendis voluptatibus maiores alias consequatur aut perferendis doloribus asperiores repellat.
I got my questions answered at brainly.com in under 10 minutes. Go to brainly.com now for free help!
Expected profit is the goal, and luckily the owners of the bookstore have you given you probabilities for the profits to earn in each economic condition scenario
Not the answer you are looking for? Search for more explanations.
Because the next year could enter either of the 3 economic condition scenarios, you will multiply each expected profit by its respective probability, then sum those 3 values to obtain the expected profit for the next year.
oh. how did you know that?
Because you dealing with expectations. This idea of expected value is prominent in finance and economics.
Because there are 3 ways the economy could go: moderate growth, recession, status quo, you also don't know which of the 3 ways will be the true way. So, there is probability assigned to each way.
If things go to moderate growth, then you will definitely make $250,000
If things go to status quo, then you will definitely make $200,000
If things go to recession, then you will definitely make $100,000
But these are all conditionals.
:D thanks flan! this was so so helpful.
Right, so to imagine the profit you will make while considering the 3 directions of the economy, you sum up the profits multiplied by their respective probabilities of economic direction.
No problem, glad to help
@sleestak By the way, I recommend changing your avatar/profile picture ;)
oh. OK. I'll do that now.
consider your table as a probability mass function,the question is asking for the expected profit or in other words the expected mean given by the formula below