suppose that you are a manager at the only Ford dealership in Great Falls, Monta

Question

suppose that you are a manager at the only Ford dealership in Great Falls, Montana. Your service department is closed on Saturday, but you are considering whether to open. If you do, you estimate there are three possibilities: (1) You attract little business, so you have only 20 new Saturday customers each month; (2) you attract some business, so you have 40 new Saturday customers each month; or (3) your initiative is a resounding success, with 100 new Saturday customers each month. If the probability of outcome 1 is 25 percent, the probability of outcome 2 is 50 percent, and the probability of outcome 3 is 25 percent, what is your expected number of customers?

Explanation / Answer

Answer

Expected Number of customers : p1C1 + p2C2 + p3C3,

p1 = probability of outcome 1 = 0.25

p2 = probability of outcome 2 = 0.50

p3 = probability of outcome 3 = 0.25

C1 = Outcome 1 = 20

C2 = Outcome 2 = 40

C3 = Outcome 3 = 100

Hence

Expected Number of customers = 0.25*20 + 0.5*40 + 0.25*100

= 5 + 20 + 25

= 50

Hence, Expected Number of customers = 50

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