Question:

A company estimates that 0.6% of their products will fail after the original warranty period but within 2 years of the purchase,

A company estimates that 0.6% of their products will fail after the original warranty period but
within 2 years of the purchase, with a replacement cost of $350.
If they offer a 2 year extended warranty for $30, what is the company's expected value of each
warranty sold?

A company estimates that 0.6% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $350. If they offer a 2 year extended warranty for $30, what is the company's expected value of each warranty sold?

Answer

They get $11 per warranty
.
They pay out 200*0.006-$1.2
The expected value is the difference or $9.8

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