Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions

-Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?
A) $14,000
B) $26,000
C) $4,000
D) $2,000
E) $10,000

Question

Consider the following to answer the question(s) below:
A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below:
Action Weather Conditions
 
-Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?
A) $14,000 
B) $26,000 
C) $4,000 
D) $2,000 
E) $10,000

Quizplus · Accepted Answer

The expected value of an indoor concert is the probability of rain multiplied by the loss if it rains, plus the probability of no rain multiplied by the profit if it does not rain. In this case, the probability of rain is 0.20, the loss if it rains is $14,000, the probability of no rain is 0.80, and the profit if it does not rain is $26,000. Therefore, the expected value of an indoor concert is (0.20 x $14,000) + (0.80 x $26,000) = $14,000.

Consider the Following to Answer the Question(s) Below