Answer:
The expected value of each warranty sold is $11.85
Step-by-step explanation:
Warranty sold for $12.
The product fails during the warranty period with 0.001 = 0.1% probability. In this case, the company has to replace the product with a cost of $150, having a net loss of 150 - 12 = $138
1-0.1% = 99.9% = 0.999 probability that it does not has to reimburse the client, so it gains $12.
What is the company's expected value of each warranty sold
0.999*12 - 0.001*138 = 11.85
The expected value of each warranty sold is $11.85
