Asked by Gustavo Perez-Ramirez on Apr 26, 2024
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(Table: Income and Utility for Whitney) Use Table: Income and Utility for Whitney.Whitney's income next year is uncertain: there is a 40% probability she will make $40,000 and a 60% probability she will make $80,000.The expected value of Whitney's income is:
A) $64,000.
B) $80,000.
C) $40,000.
D) $56,000.
Expected Value
The anticipated value of a variable, calculated as a weighted average of all possible values, with weights being their probabilities of occurrence.
Income
The total amount of money received by an individual or group over a certain period, often derived from work, investments, or business ventures.
Probability
Probability is a measure of the likelihood of an event to occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.
- Forecasting expected values and utility in scenarios with indeterminate income.
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Learning Objectives
- Forecasting expected values and utility in scenarios with indeterminate income.
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