Four years ago, Victor Consuelo purchased a very reliable automobile (as rated b
ID: 3126112 • Letter: F
Question
Four years ago, Victor Consuelo purchased a very reliable automobile (as rated by a reputable consumer advocacy publication). His warranty has just expired, but the manufacturer has just offered him a 5-year, bumper-to-bumper warranty extension. The warranty costs $3,400. Consuelo constructs the following probability distribution with respect to anticipated costs if he chooses not to purchase the extended warranty.
Four years ago, Victor Consuelo purchased a very reliable automobile (as rated by a reputable consumer advocacy publication). His warranty has just expired, but the manufacturer has just offered him a 5-year, bumper-to-bumper warranty extension. The warranty costs $3,400. Consuelo constructs the following probability distribution with respect to anticipated costs if he chooses not to purchase the extended warranty.
Explanation / Answer
B)Since expected Cost is less than cost of warranty i.e. $3400 ..Vector should not buy Warranty
Cost (in $) Probability Cost * Prob 1,000 0.25 250 2,000 0.45 900 5,000 0.2 1000 10,000 0.1 1000 Expected cost $ 3150Related Questions
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