Question

Jose is going to order wrenches for his hardware store. He can order four different types and the table shows the profit margin for each type in tens of dollars and the probability. Which wrench should he order?

Answer 1

B

Explanation:

The expected value of profit margin is the sum of the product of profit margin and probability.

Wrench A:

... 10×.05 +20×.6 +30×.2 +40×.15 = 0.5 +12 +6 +6 = 24.5

Wrench B:

... (20+40)×.3 +(30+50)×.2 = 18 +16 = 34

Wrench C:

... 15×.4 +30×.5 +(45+60)×.05 = 6 +15 +5.25 = 26.25

Wrench D:

... 5×.2 +10×.4 +15×.15 +20×.25 = 1 +4 +2.25 +5 = 12.25

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Clearly, Wrench B has the greatest expected profit margin. That would be the one Jose should order if he's trying to maximize his profit.