A firm is neogotiating with a local club to supply materials for a party. Please

Question

A firm is neogotiating with a local club to supply materials for a party. Please view the attached image for the rest of the question and answer all parts. Thank you.

7.20. A firm is negotiating with a local club to supply materials for a party. The firm's manager expects to sell 100 large bags of pretzels for $3 each or 300 for $2 each; these two outcomes are judged to be equally likely. The expected number of bags sold is 200 = (100 + 300)/2, and expected price is $2.50 (S3 $2)/2. The manager then calculates expected rev- enue as the expected number sold times the expected price: E(Revenue) 200 ($2.50) $500. What is wrong with the manager's calculation?

Explanation / Answer

For calculating the expected price, we do sumproduct of x values and probabilities associated with it. We can't simply find average to get the expected price. The expected price will be:

E(Revenue) = 0.5*(100*3) + 0.5*(300*2) = 150 + 300 = $450

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.