If he feels the chances of low, moderate, and high demand are 30%, 30%, and 40% respectively, what is the expected annual profit for the bus that he will decide to purchase?
A)$15,000
B)$61,000
C)$69,000
D)$72,000
E)$87,000

Question

Quizplus · Accepted Answer

To calculate the expected annual profit for each bus, we need to multiply the profit for each level of demand by its probability, and then add up the result:

Expected Annual Profit = (0.3 x 20,000) + (0.3 x 50,000) + (0.4 x 100,000)
Expected Annual Profit = 6,000 + 15,000 + 40,000
Expected Annual Profit = 61,000

Therefore, the expected annual profit for the bus that the businessman will decide to purchase is $72,000.

As a result, the best choice would be to purchase the bus that can accommodate 40 passengers.

If He Feels the Chances of Low, Moderate, and High