Statistics 260 question: please please help

Jun 25th, 2014
Price: $5 USD

Question description

An extended warranty is a prolonged warranty offered to consumers by the warranty administrator, the retailer, or the manufacturer.  A recent report in The New York Times (November 23, 2009) suggests that 20.4% of laptops fail over three years.  Roberto D'Angelo is interested in an extended warranty for his laptop.  A good extended warranty is being offered at for $74.  It will cover any repair job that his laptop may need in the next three years.  Based on his research, he determines that the likelihood of a repair job in the next three years is 13% for a minor repair, 8% for a major repair, and 3% for a catastrophic repair.  The extended warranty will him $80 for a minor repair, $320 for a major repair, and $500 for a catastrophic repair.  These results are summarized in the following probability distribution.

Type of Repair Probability Repair Cost
None 0.76 $0
Minor  0.13 $80
Major 0.08 $320
Catastrophic 0.03 $500

In a report, use the above information to:

1. Calculate and interpret the expected value of the repair cost.

2. Analyze the expected gain of loss for a consumer who buys the above extended warranty.

3. Determine what kind of a consumer (risk neutral, risk averse, or both) will buy this extended warranty.

Tutor Answer

(Top Tutor) johnalia
School: UC Berkeley

Studypool has helped 1,244,100 students

Review from student
" Wow this is really good.... didn't expect it. Sweet!!!! "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1824 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors