Question

In: Statistics and Probability

David, the promoter of an outdoor​ concert, expects a net profit of​ $100,000, unless it​ rains,...

David, the promoter of an outdoor​ concert, expects a net profit of​ $100,000, unless it​ rains, which would reduce the net profit to ​$30,000. The probability of rain is 0.30 For a premium of ​$23,000 David can purchase insurance coverage that would pay him​ $100,000 in case of rain. Find the expected net profit when the insurance is not purchased.

Solutions

Expert Solution

P(Rain) = 0.30

P(No rain) = 1 - 0.30 = 0.70

When insurance is not purchased, the expected net profit = Profit when it rains x P(rain) - Profit when it does not rain x P(no rain)

= 30,000x0.30 + 100,000x0.70

= $79,000

Note: When insurance is purchased, expected net profit = 100,000 - 23,000 = $77,000

orchestra answered 2 years ago
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