The dean of a college wants to determine which of two new classes to offer for the upcoming semester. Due to facility constraints only one class can be offered at this time. The dean feels that the first class has an 80 percent chance of earning the college about $75,000, but a 20 percent chance of losing $35,000. If the class is successful, then its next level class will be offered, with a 75 percent chance of earning $60,000, but a 20 percent chance of losing $30,000. Weighing the options, the dean feels that the second class has a 60 percent chance of earning $85,000, but a 40 percent chance of losing $40,000. If the second class is successful, then its next level class will be offered with a 50 percent chance of earning $80,000, but a 50 percent chance of losing $45,000. If both classes are not successful, neither of their next level classes will be offered to the students.What is the expected value for selecting the first class?
A)$90,000
B)$83,000
C)$75,500
D)$50,000
E)$45,500

Question

Quizplus · Accepted Answer

The expected value for selecting the first class is $83,000. This is calculated by multiplying the probability of each outcome by the corresponding payoff and then summing the results. For the first class, the probability of earning $75,000 is 0.8, the probability of losing $35,000 is 0.2, the probability of earning $60,000 is 0.75, and the probability of losing $30,000 is 0.2. The expected value is therefore:(0.8 x $75,000) + (0.2 x -$35,000) + (0.75 x $60,000) + (0.2 x -$30,000) = $83,000

The Dean of a College Wants to Determine Which of Two