Question

There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $60,000, $25,000, and -$10,000 under these states of nature, respectively, what is the EMV of the factory?

Answer 1

If they are equally likely, EMV is

$\frac 13 \cdot 60000+\frac 13 \cdot25000-\frac 13 \cdot10000=\frac 13 \cdot 75000=25000.$