A recently-accredited College of Business discovers it is in dire financial trouble and wants to examine demand for services and costs to provide them next year.Market conditions may become more favorable,resulting in a 10% increase in enrollment,with a probability of 0.5,stay the same,with a probability of 0.3,or become less favorable,with a probability of 0.2 and a decrease in enrollment of 10%.There is a 0.9 probability that their costs to provide services will rise by 5% and a 0.1 probability that their costs will be the same.This year,they charge each of their 2000 students $3000 to take a full course load and spend $1500 on each student.
-What is the expected profit for the college?
A)$910,550
B)$850,500
C)$765,050
D)$890,950

Question

Quizplus · Accepted Answer

The expected profit is calculated by considering the probabilities of different market conditions and cost changes. The expected enrollment is 2000 * (1 + 0.5*0.1 + 0.3*0 + 0.2*(-0.1)) = 2000 * 1.03 = 2060. The expected cost per student is $1500 * (0.9*1.05 + 0.1*1) = $1537.5. The expected revenue is 2060 * $3000 = $6,180,000. The expected cost is 2060 * $1537.5 = $3,168,750. The expected profit is $6,180,000 - $3,168,750 = $3,011,250.

A Recently-Accredited College of Business Discovers It Is in Dire