Probability and Statistics A mining company is in the middle

Probability and Statistics: A mining company is in the middle of an operation at a particular location. The probability the operation succeeds is 0.4, and the probability it fails is 0.6. If they continue the operation and succeed, they will make $1,000,000. If they continue the operation and fail, they will lose $600,000. If they do not continue but would have succeeded, they will lose $400,000 due to competitive reasons. If they do not continue and would have failed, they would have saved $100,000. 1) Find the expected profit if the company continues. 2) Find the expected profit if the company does not continue. 3) Make a recommendation for the company.

Solution

P(S)=0.4

P(F)=0.6

(C and S)= $1,000,000

C and F=- $600,000

C’ and S=- $400,000

C’ and F= $100,000

1) The expected profit if the company proceeds is: 1,000,000*0.4-600,000*0.6

=40000

2)The expected profit if the company does not continue is:- 400000*0.4+100000*0.6

=-100000