Question

Lelia is looking to buy a pair of Apple AirPods, which usually cost $140, at a discounted price. There is a listing at $65 dollars that she is interested in purchasing. There is a 40% chance the AirPods are in perfect condition, which would save her $75. However, there is a 30% chance that the AirPods are defective, which would add a repair cost of $90, for a net loss of $15. There is also a 30% chance the AirPods are never delivered, for a net loss of $65.

1. What is the expected value of gain or loss from this purchase?
2. Is it a good idea for Lelia to go through with the purchase?

Answer 1

1. $6>0

2. Yes

Step-by-step explanation:

Let us assume x for the net gain arise from the purchase

1. The expected gain is

= $75(0.40) - $15(0.30) - $65(0.30)

= 30 - 4.5 - 19.5

= $6

Hence, the expected gain is $6>0

2. So it is a good idea to go with the purchase