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Scenario: Used Car Market
In the used car market, cars of poor quality are called lemons, while cars of good quality are plums. Suppose the probability of obtaining a lemon is 60% and the probability of obtaining a plum is 40%. Also assume a plum is worth $15,000 and a lemon is worth $3,000.
-(Scenario: Used Car Market) Look at the scenario Used Car Market. The expected value of a used car is:
A) $9,000.
B) $7,800.
C) $18,000.
D) $10,500.

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying the value of each outcome by its probability and summing the results: (0.6 * $3,000) + (0.4 * $15,000) = $7,800.

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