A road between Fairbanks and Nome, Alaska, will have a most likely construction cost of $7 million per mile. Doubling this cost is considered to have a probability of 30%, and cutting it by 25% is considered to have a probability of 10%. The state’s interest rate is 4%, and the road should last 25 years before major reconstruction. What is the probability distribution of the equivalent annual construction cost per mile?

A road between Fairbanks and Nome, Alaska, will have a most likely construction cost of $7 million per mile. Doubling this cost is considered to have a probability of 30%, and cutting it by 25% is considered to have a probability of 10%. The state’s interest rate is 4%, and the road should last 25 years before major reconstruction. What is the probability distribution of the equivalent annual construction cost per mile?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 2MC

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