Answer to Question #246463 in Statistics and Probability for ceci

Question

A company makes electronic gadgets. One out of every 50 gadgets is faulty, but the company doesn't know which ones are faulty until a buyer complains. Suppose the company makes a Php 1,000.00 profit on the sale of any working gadget, but suffers a loss of Php 25, 000.00 for every faulty gadget because they have to repair the unit.

Answer 1

There is Php 1,000.00 profit and Php 25, 000.00 loss on faulty gadgets.

We want to calculate if the company can expect profit in long run.

The probability of getting a faulty gadget is as follows.

P(Faulty)=1/50=0.02

P(Not Faulty)=1−0.02=0.98

The expected profit is as E(X)=∑xP(X=x).

E(X)=1000×0.98 +(−25000)×0.02=980-500=480

Thus, in a long run the company will have profit.