Question: 6. (15 points) A Construction Company is considering whether to accept or reject a $23,000 contract to build a new deck for a motel. If

6. (15 points) A Construction Company is considering whether to accept

6. (15 points) A Construction Company is considering whether to accept or reject a $23,000 contract to build a new deck for a motel. If the company has to sink the piers down to bedrock, it will lose $700 otherwise its profit will be $3, 700. The probability it has to put in the piers is 20%. (a) What is the expected value of this contract? (5 pts) (b) A seismic study of the property could specify whether piers have to be sunk or not before the company must accept or reject the contract. By how much would the seismic study increase company's expected value? What is the most that it will pay for such a study? (10 pts)

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