Answer:
The expected value of each warranty sold is $23.8.
Step-by-step explanation:
0.8% probability of the product failling.
If the product fails, the company will lose 400 - 27 = $373. So a net value of -373.
100 - 0.8 = 99.2% probability of the product not failling.
If the product does not fail, the company gains $27.
What is the company's expected value of each warranty sold?
We multiply each outcome by its probability.
0.008*(-373) + 0.992*27 = 23.8
The expected value of each warranty sold is $23.8.
