Ephemeral services corporation (esco) knows that nine other companies besides esco are bidding for a $900,000 government contract. each company has an equal chance of being awarded the contract. if esco has already spent $100,000 in developing its bidding proposal, what is its expected net profit?

a. $10,000

b. $0

c. $100,000

d. $90,000

Question

Mathematics

Guido

12 August, 17:57

Ephemeral services corporation (esco) knows that nine other companies besides esco are bidding for a $900,000 government contract. each company has an equal chance of being awarded the contract. if esco has already spent $100,000 in developing its bidding proposal, what is its expected net profit?

a. $10,000

b. $0

c. $100,000

d. $90,000

+3

Answers (1)

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Tucker Valenzuela · Answer 1

c. $100,000

Step-by-step explanation:

Calculation of the expected net profit of Ephemeral services corporation

Since we are been told that 9 other companies besides esco are as well bidding for the $900,000 government contract, it means we have to find the expected net profit by dividing 1 by 9*$900,000. Thus ESCO can only expect to cover its sunk cost.

Hence,

E (X) = (1/9) * $900,000

E (X) = 0.111111111*$900,000

E (X) = $100,000

Therefore the expected net profit would be $100,000