A city manager is considering three strategies for a $1,000 investment. The probable returns are estimated...

A city manager is considering three strategies for a $1,000 investment. The probable returns are estimated as follows: • Strategy 1: A profit of $5, 000 with a probability of 0.20 and a loss of $1, 000 with a probability of 0.80.

• Strategy 2: A profit of $2, 000 with a probability of 0.40, a profit of $500 with a probability of 0.30 and a loss of $1, 000 with a probability of 0.30.

• Strategy 3: A certain profit of $400.

(a) Which strategy has the highest expected profit?

(b) If the city manager is going to pick only 1 strategy, which of the three strategies would you definitely advise against? Provide specific (numeric) details to support your answer.

Solutions

Expert Solution

Solution: Here concept of expectation is used.

milcah answered 8 months ago

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