Given:
• Profit per camera = $186
,
• Cost of replacing the camera = $3100
,
• Probability it will be replaced once = 4% = 0.04
,
• Probability it will be replaced twice = 1% = 0.01
,
• Probability it will not be replaced = 95% = 0.95
Now, let's determine if the company should expect to make money or lose money from selling the camera.
Let's find the expected cost of repair.
We have:
E = (0.04 x 3100) + (0.01 x 2 x 3100) + (0.95 x 0)
E = 124 + 62 + 0
E = 186
Therefore, the expected cost of repair is $186.
We can see the profit per camera and the expected cost of repair are the same.
Profit per camera = Expected cost of repair
Since they are equal, the company should expect to neither make nor lose money from selling these cameras.
ANSWER:
Brady & Matthew should expect to neither make nor lose money from selling these cameras.