Question

If Brady & Mathew knows that it will sell many of these cameras, should it expect to make or lose money from sell them? How much?

Answer 1

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.