Probability

Question

You are the owner of a construction company. You already know the chances of making a profit
are 55%. The chances of breaking even are 15%. If the contract fails, you will lose $200,000. If
over the long run, your expectation is to make a profit of $187,500, find the profit amount you
make when a contract is successful.

Answer 1

$P is the average profit. P(Success) = 55% = 0.55

 

$0 is the break even profit. P(Break even) = 15% = 0.15

 

-200,000 is the the profit when contract fails. P (Failure) = 100% - ( 55% + 15%) = 30% = 0.3

 

Expected profit = 187,500 = (.55 * P)+ (0.15 * 0) + (0.3 * (-200000)) = 0.55 P - 60000 => P = (187500+60000) / 0.55 =  $ 450,000