First cost of a construction project depends on weather. Historical weather data shows that in the fall weather is warm 20% of the time, it is cold 30% of the time and it is somewhat in between 50% of the time. During warm weather, first cost is expected to be $225 000, during cold weather $295 000 and $250 000 in between. What is the expected value of the first cost?
A)$225 000
B)$250 000
C)$252 000
D)$258 500
E)$295 000

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying each cost by its probability and summing the results: (0.20 * $225,000) + (0.30 * $295,000) + (0.50 * $250,000) = $258,500.

First Cost of a Construction Project Depends on Weather