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# Probability Basics: Expected Revenue

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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 fot \$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 \$2,5 = (\$3+\$2)/2. The manger then calculates expected revenue as the expected number sold times the expected price: E(Revenue) = 200(\$2,5)=\$500. What is wrong with the manager calculation?

#### Solution Preview

100 bags for \$3 each

300 Bags for \$2 each

Equally likely outcomes

Expected revenue=0.5(100*3)+0.5(300*2)=150+300=\$450.

The expected ...

#### Solution Summary

The solution provides a step-by-step explanation of how to calculate expected revenue and what is wrong with the calculation given by the manager.

\$2.19