You expect one-third of your customers to be high value,willing to pay $9 for your product,and the other two-thirds to be low value customers willing to pay only $3.You cannot tell them apart.If the product costs $3,and you charge $9,what is your expected profit?
A)$1
B)$2
C)$3
D)$4

Question

​You expect one-third of your customers to be high value,willing to pay $9 for your product,and the other two-thirds to be low value customers willing to pay only $3.You cannot tell them apart.If the product costs $3,and you charge $9,what is your expected profit?
A)​$1
B)$2
C)$3
D)​$4

Quizplus · Accepted Answer

We can use the formula for expected value to find the expected profit:

Expected profit = (Probability of High-Value customer * Profit from High-Value customer) + (Probability of Low-Value customer * Profit from Low-Value customer) 
= (1/3 * 6) + (2/3 * 0) 
= 2

Therefore, our expected profit is $2.

The best choice is B, because it correctly calculates the expected profit based on the given information.

​You Expect One-Third of Your Customers to Be High Value,willing

You Expect One-Third of Your Customers to Be High Value,willing