# Question: The EZ Construction Company is offered a 20 000 contract

The EZ Construction Company is offered a $ 20,000 contract to build a new deck for a house. The company’s profit if it does not have to sink piers (vertical supports) down to bedrock will be $ 4,000. However, if it does have to sink the piers, it will lose $ 1,000. The probability it will have to put in the piers is 25%. What is the expected value of this contract? Now, EZ learns that it can obtain a seismic study of the property that would specify whether piers have to be sunk before EZ must accept or reject this contract. By how much would the seismic study increase EZ’s expected value? What is the most that it will pay for such a study?

**View Solution:**## Answer to relevant Questions

By next year, a stock you own has a 25% chance of being worth $ 400 and a 75% probability of being worth $ 200. What are the expected value and the variance? 1.5. Suppose that an individual is risk averse and has to choose between $ 100 with certainty and a risky option with two equally likely outcomes: $ 100 – x and $ 100 + x. Use a graph (or math) to show that this person’s risk ...Lucy, the manager of the medical test firm, Dubrow Labs, worries about being sued for botched results from blood tests. If it isn’t sued, the firm expects to earn a profit of 100, but if it is successfully sued, its profit ...Robert Green repeatedly and painstakingly applied herbicides to kill weeds that would harm his sugar beet crops in 2007. However, in 2008, he planted beets genetically engineered to withstand Monsanto’s Roundup herbicide. ...Suppose that half the population is healthy and the other half is unhealthy. If an insured healthy person gets sick, the full cost to the insurance company is $ 1,000. If an insured unhealthy person gets sick, the cost to ...Post your question