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A company makes electronic gadgets. 2% are faulty, the company doesn't know which ones are faulty until a buyer complains. Suppose the company makes a $250 profit on each sale, but has to refund the sale price and suffers a loss of $8 for every faulty gadget because they have to repair the unit. What is the profit(or loss) the company can expect to make from selling 100 units?.
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Expected faulty units = 100 × 0.02 = 2.
For a good unit the profit = $250 → 98 good units give 98 × 250 = $24,500.
For a faulty unit they lose the $250 profit and pay $8 to repair, i.e. net −$258 each → 2 faulty units give 2 × (−258) = −$516.
Total expected profit = 24,500 − 516 = $23,984.
For a good unit the profit = $250 → 98 good units give 98 × 250 = $24,500.
For a faulty unit they lose the $250 profit and pay $8 to repair, i.e. net −$258 each → 2 faulty units give 2 × (−258) = −$516.
Total expected profit = 24,500 − 516 = $23,984.
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