Expected Cost of an Uncertain Repair
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A repair has a 20% chance of costing $50,000 and an 80% chance of costing $5,000. What is the expected cost?
- A$5,000
- B$10,000
- C$14,000
- D$45,000
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Answer: C. $14,000
Expected cost = 0.20($50,000) + 0.80($5,000) = $10,000 + $4,000 = $14,000.
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