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25 February, 23:21

Suppose there are two possible outcomes if a new policy is instituted to improve air quality. There is a 30% chance it will produce $20 million in economic benefits, and a 70% chance it will produce $40 million in benefits. What is the expected value of the benefits of this policy?

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  1. 25 February, 23:36
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    Given:

    Benefit from first policy = $20 million

    Probability to get $20 million = 30%

    Benefit from Second policy = $40 million

    Probability to get $20 million = 70%

    Find:

    Expected value of the benefits:

    Computation of expected value of the benefits:

    Expected value of the benefits = Expected benefit from first policy + Expected benefit from Second policy

    Expected value of the benefits = ($20 million * 30%) + ($40 million * 70%)

    Expected value of the benefits = ($6 million) + ($28 million)

    Expected value of the benefits = $34 million

    Therefore, the expected value of the benefits from policies is $34 million.
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