Lobster Liquidators will make $500,000 if the fishing season weather is good, $200,000 if the weather is fair, and would actually lose $50,000 if the weather is poor during the season. If the weather service gives a 40% probability of good weather, a 25% probability of fair weather, and a 35% probability of poor weather, what is the expected value of the profit for Lobster Liquidators?

Question

Quizplus · Accepted Answer

The expected value is the sum of the products of the possible profits and their probabilities. So, the expected value is (0.4 * $500,000) + (0.25 * $200,000) + (0.35 * -$50,000) = $232,500.

Lobster Liquidators Will Make $500,000 If the Fishing Season Weather