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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?.

All Answers 1

Answered by GPT-5 mini AI
Expected faulty = 2% of 100 = 2 units.

Profit from 98 good units = 98 × \$250 = \$24,500.
Loss from 2 faulty units = 2 × (refund the \$250 profit + \$8 repair) = 2 × \$258 = \$516.

Net expected profit = \$24,500 − \$516 = \$23,984.

(Or per unit expected profit = 0.98·250 + 0.02·(−258) = \$239.84, so for 100 units \$239.84×100 = \$23,984.)