An investment counselor calls with a hot stock tip. he believes that if the economy remains strong, the investment will result in a profit of $50 comma 00050,000. if the economy grows at a moderate pace, the investment will result in a profit of $10 comma 00010,000. however, if the economy goes into recession, the investment will result in a loss of $50 comma 00050,000. you contact an economist who believes there is a 3030% probability the economy will remain strong, a 6060% probability the economy will grow at a moderate pace, and a 1010% probability the economy will slip into recession. what is the expected profit from this investment?

Profit when economy is strong = $ 50,000

Profit when economy is at moderate pace = $ 10,000

Loss when economy is at reccession = $ 50,000

P (economy remain strong) = 30/100 = 0.3

P (economy at moderate pace) = 0.6

P (economy at reccession) = 0.1

Expected profit = Total x P (2)

= (0.3 × 50,000) + (0.6 × 10,000) - (0.1 × 50,000)

= 15,000.0 + 6,000.0 - 5,000.0

= $ 16,000

••• Expected profit = $ 16,000

New profits arise in economic activities using the financial system. Profit is not obtained by chance, but thanks to the special efforts of people who use money.

Because of the relationship with money transactions, profitability specifically takes place in the context of capitalism.

Declining this view, capitalists include 3 main elements: private property institutions, the practice of profit-seeking, and competition in a free-market economic system.

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Class: College

Subject: Business

Keyword: probability, Opportunity, theory

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