Answer:
If Joseph was going to buy a large number of phones, and he bought the warranty on each phone, he should expect to lose value from the warranties.
Step-by-step explanation:
Given - Joseph just bought a brand new cell phone and a warranty for the cell phone. The warranty cost 300 euros and is worth 800 euros if his phone breaks. Joseph estimates that there is a 20% chance of his phone breaking.
Joseph calculates the expected value of buying the warranty to be -140.
To find - Which of the following statements are true?
Joseph will certainly lose value from the warranty.
Joseph will certainly gain value from the warranty.
If Joseph was going to buy a large number of phones, and he bought the warranty on each phone, he should expect to lose value from the warranties.
Proof -
Given that , expected value = -140
⇒It means Joseph lose 140
(negative represents loss )
Now,
Given the expected values, it means we have given the probability so we can not be sure about loosing money
So,
The 1st and 2nd option is wrong because certain means sure because in the question we are not sure that Joseph phone will break or not.
Now,
The 3rd option says that if Joseph buy large amount of phone then he expect to lose value from from warranties .
This is the correct option because if we buy phones and warranty on phone then the expected value will divide on each phone.
So, the chance of impact on loss will decrease.
The correct option is - If Joseph was going to buy a large number of phones, and he bought the warranty on each phone, he should expect to lose value from the warranties.
