1
$\begingroup$

Hey everyone, thanks for taking the time to look at this question. This is pretty simple, and I understand statistics quite well, but I think I'm not wrapping my head around the words, it seems to me as if there's something missing. Here's the question.

The manager of the aerospace division of General Aeronautics has estimated the price it can charge for providing satellite launching services to commercial firms. Her most optimistic estimate (a price not expected to be exceeded more than 10 percent of the time) is 2 million. Her most pessimistic estimate (a lower price than this one is not expected more than 10 percent of the time) is 1 million. The expected value estimate is 1.5 million. The price distribution is believed to be approximately normal.

What is the expected price?
What is the std dev of the launch price?
What is the probability of receiving a price less than 1.2 million?

So what is the actual probability of a 2 million dollar price? It just says that they don't expect to exceed 2 million more than 10% of the time. Does that mean 90% of the time they expect the price to be less than 2 million?

Thanks for your suggestions.

Improve this question
$\endgroup$
1

1 Answer 1

Reset to default
1
$\begingroup$

actually i think i answered it, i was over complicating it. the probability under thethe std normal curve associated with a greater value than 2 mill is 10%. So the z value associated with 90% (to the left of 2mill) is 1.285. So;

1.285=(value-mean)/std dev The mean is given as 1.5 which is also the expected price right? So the std dev works to be .389. This means the probability of getting less than 1.2mill 22.9%.

Sound right to anyone?

Thanks!

Improve this answer
$\endgroup$
1
  • 1
    $\begingroup$ Sounds right to me. But remember that this is basically a prior probability, because it is based on expectations (aka beliefs) about what will happen, rather than a description of what will actually happen to the price. The price in reality is not random, because it will be set by the managers of the various companies. Probability provides a way to describe the uncertainty due to not knowing what the other managers will actually do when setting their prices. $\endgroup$
    – probabilityislogic
    Commented Feb 5, 2011 at 12:59

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.