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If Motown knows that it will sell many of these warranties, should it expect to make or lose money from offering them? How much?

If Motown knows that it will sell many of these warranties, should it expect to make-example-1
User Rayan Elmakki
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1 Answer

17 votes
17 votes

We will have the following:

We know that there is a 7% chance that they would need to pay the car; that means that for each 100 people that pay the warranty 7 would need to be paid for it; so the total amount obtained from 100 people would be:


T=100(983)-7(13400)\Rightarrow T=4500

Now, from this we can determine the total amount of money gained from each warranty sold by dividing by the total of the hypothetical sales; in our case 100, that would be:


x=(4500)/(100)\Rightarrow x=45

So:

MotoWin can expect to make money from offering these warranties.

In the long run, they should expect to make 45 dollars on each warranty sold.

User NoodleCollie
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