The manager of the aerospace division of General Aeronautics has estimated the p
ID: 1241638 • Letter: T
Question
The manager of the aerospace division of General Aeronautics has estimated theprice it can charge for providing satellite launch services to commercial firms. Her
most optimistic estimate (a price not expected to be exceeded more than 10 percent
of the time) is $2 million. Her most pessimistic estimate (a lower price than
this one is not expected more than 10 percent of the time) is $1 million. The
expected value estimate is $1.5 million. The price distribution is believed to be
approximately normal.
a. What is the expected price?
b. What is the standard deviation of the launch price?
c. What is the probability of receiving a price less than $1.2 million?
Explanation / Answer
The probability under the std normal curve associated with a greater value than 2 mill is 10%. So the z value associated with 90% (to the left of 2mill) is 1.285. So;
1.285=(value-mean)/std dev The mean is given as 1.5 which is also the expected price right? So the std dev works to be .389. This means the probability of getting less than 1.2mill 22.9%.
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