US CMA Part 1 · Chapter 2 · Question 9 of 30
A product manager estimates next quarter's unit demand as follows: 10,000 units: probability 0.3 14,000 units: probability 0.5 18,000 units: probability 0.2 What is the expected demand?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 13,600 units
Explanation
Expected value = (10,000 x 0.3) + (14,000 x 0.5) + (18,000 x 0.2) = 3,000 + 7,000 + 3,600 = 13,600 units. The most likely outcome (14,000) and the simple average (14,000) ignore the probability weights. Pairing the probabilities with the wrong outcomes (10,000 x 0.2 + 14,000 x 0.5 + 18,000 x 0.3) gives 14,400, and 18,000 is simply the highest possible demand.
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