Answer:
C) The expected value is -$40, so the man should not buy the warranty.
Step-by-step explanation:
The total cost to the man is expected to be the total of the amount he pays for the warranty and any amounts he gets because he has the warranty ...
-$100 +600×0.10 +0×0.90 = -$40
The expected value of the warranty is -$40. Based on that alone, the man should decide not to buy it.
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<em>Comment on warranties</em>
The expected value of a warranty to the buyer is <em>always negative</em>. That is how warranty companies make their money. Clearly, <em>expected value</em> is not the only criterion that should be considered.
