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12 November, 14:48

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

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  1. 12 November, 14:49
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    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
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