Question

Gary’s Pipe and Steel company expects sales next year to be $1,000,000 if the economy is strong, $700,000 if the economy is steady, and $385,000 if the economy is weak. Gary believes there is a 20 percent probability the economy will be strong, a 65 percent probability of a steady economy, and a 15 percent probability of a weak economy.

What is the expected level of sales for next year?

Answer 1

To find the expected level of sales for next year, multiply each possible sales amount by its corresponding probability and sum up the results. The expected level of sales for next year is $712,750.

Step-by-step explanation:

To find the expected level of sales for next year, we need to multiply each possible sales amount by its corresponding probability and sum up the results.

Let's calculate:

• Expected sales with a strong economy: $1,000,000 x 0.20 = $200,000
• Expected sales with a steady economy: $700,000 x 0.65 = $455,000
• Expected sales with a weak economy: $385,000 x 0.15 = $57,750

Now, add up the expected sales amounts: $200,000 + $455,000 + $57,750 = $712,750

The expected level of sales for next year is $712,750.