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Mairoon Mairoon
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6 years ago
On any given day, a salesman can earn $0 with a 20% probability, $100 with a 40% probability, or $300 with a 20% probability. Calculate the expected value and variance of his earnings, and interpret.
Textbook 
Microeconomics

Microeconomics


Edition: 6th
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Replies
wrote...
#1
6 years ago
E(X) = (0 * .2) + (100 * .4) + (300 * .2) = $100
Variance(X) = .2(0 − 100)2  + .4(100 – 100)2 + .2(300 – 100)2 = 2000 + 0 + 8000 = 10,000.

E(X) tells us that her earnings will average $100 per day if she stays at this job over a long time period. The variance is a measure of how risky her income is.
Mairoon Author
wrote...
#2
5 years ago
Perfect
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