Question

Suppose you work for a company that manufactures electronics. The development analysts estimate that 5% of their flagship product will fail within 2 years of the purchase date, with a replacement cost of $ 1800.

A newly hired associate at the company proposes to charge $ 83 for a 2 year warranty.

a. Compute the expected value of this proposal. Let X be the amount profited or lost (by the company) on the warranties and P(X) is the probability. E=E=

b. Interpret the expected value in complete sentences. (See Example 4.3 in the textbook for an example of this)



c. Write your review of the proposal and address it to VP of marketing and promotions. Include the following in your essay: Would the proposal benefit the company? Why or why not? Include the new proposed cost, new expected value, interpretation of the new expected value, and explanation of how the new cost was chosen.

Answer 1