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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 $49 profit on each sale, but has to refund the sale price and suffers a loss of $7 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 = 2% of 100 = 2 units.
Profit from 98 good units = 98 × \$49 = \$4,802.
Loss from 2 faulty units = 2 × (\$49 refund + \$7 repair) = 2 × \$56 = \$112.
Net expected profit = \$4,802 − \$112 = \$4,690.
(Or per unit: 0.98·49 + 0.02·(−56) = \$46.90; ×100 = \$4,690.)
Profit from 98 good units = 98 × \$49 = \$4,802.
Loss from 2 faulty units = 2 × (\$49 refund + \$7 repair) = 2 × \$56 = \$112.
Net expected profit = \$4,802 − \$112 = \$4,690.
(Or per unit: 0.98·49 + 0.02·(−56) = \$46.90; ×100 = \$4,690.)
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