Assume that the business makes a profit with probability 0.4 in the fi

kolonelyf4

kolonelyf4

Answered question

2021-11-15

Assume that the business makes a profit with probability 0.4 in the first year. For each year thereafter, the business makes a profit with probability 0.9 if it made a profit in the previous year, and with probability 0.2 if it did not make a profit in the previous year.
What is the probability that the business makes a profit in exactly two of its first three years?

Answer & Explanation

Anot1954

Anot1954

Beginner2021-11-16Added 16 answers

Step 1
According to the given information:
Probability that the business makes a profit in first year =0.4
Probability that the business makes a profit thereafter is it makes a profit in previous year =0.9
Probability that the business makes a profit thereafter is it does not makes a profit in previous year =0.2
Step 2
It is needed to calculate the probability that the business makes a profit in exactly two of its first three years.
For these 3 cases arises:
Profitable is year 1 and 2 not in 3
Profitable in year 1 and 3 not in 2 Profitable in year 2 and 3 not in 1
Case 1:
The probability of being profitable in year 1=0.4
The probability of being profitable in year 2=0.9
The probability of being not profitable in year 3=0.1(10.9)
So, the probability that the business is profitable in year 1 and 2 but not in 3 is 0.4×0.9×0.1=0.036
Case 2:
The probability of being profitable in year 1=0.4
The probability of being not profitable in year 2=0.1(10.9)
The probability of being profitable in year 3=0.2
So, the probability that the business is profitable in year 1 and 3 but not in 2 is 0.4×0.1×0.2=0.008
Case 3:
The probability of being not profitable in year 1=0.6(1-0.4)
The probability of being profitable in year 2=0.2
The probability of being profitable in year 3=0.9
So, the probability that the business is profitable in year 2 and 3 but not in 1 is 0.6×0.2×0.9=0.108
Step 3
The probability that the business make profit in exactly 2 of its 3 years is calculated as follows
0.036+0.008+0.108=0.152
Therefore, the probability that the business make profit in exactly 2 of its 3 years is 0.152.

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