SOLUTION: 2.)Suppose the warranty period on your family’s new television is about to expire and you are debating about whether to buy a one-year maintenance contract for $35. If you buy the

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Question 999963: 2.)Suppose the warranty period on your family’s new television is about to expire and you are debating about whether to buy a one-year maintenance contract for $35. If you buy the contract, all repairs for one year are free. Consumer information shows that 12% of the televisions like yours require an
annual repair that costs $140 on the average. Would you advise buying the maintenance contract? Explain your reasoning
Answer by stanbon(75887) About Me  (Show Source):
You can put this solution on YOUR website!
Suppose the warranty period on your family’s new television is about to expire and you are debating about whether to buy a one-year maintenance contract for $35. If you buy the contract, all repairs for one year are free. Consumer information shows that 12% of the televisions like yours require an
annual repair that costs $140 on the average. Would you advise buying the maintenance contract? Explain your reasoning
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Expected cost of repair:: 0.12*140 = $16.80
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Expected loss from contract:: 0.88*35 = 30.8
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Expected value = 16.80-30.8 = -$14.00
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Ans: Do not buy maintenance contract.
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Cheers,
Stan H.
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