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A warranty is written on a product worth $10,000 so that the buyer is given $8000 if it
Chapter 2, Problem 2.3-9(choose chapter or problem)
A warranty is written on a product worth $10,000 so that the buyer is given $8000 if it fails in the first year,$6000 if it fails in the second, $4000 if it fails in the third, $2000 if it fails in the fourth, and zero after that. The probability that the product fails in the first year is 0.1, and the probability that it fails in any subsequent year, provided that it did not fail prior to that year, is 0.1. What is the expected value of the warranty?
Questions & Answers
QUESTION:
A warranty is written on a product worth $10,000 so that the buyer is given $8000 if it fails in the first year,$6000 if it fails in the second, $4000 if it fails in the third, $2000 if it fails in the fourth, and zero after that. The probability that the product fails in the first year is 0.1, and the probability that it fails in any subsequent year, provided that it did not fail prior to that year, is 0.1. What is the expected value of the warranty?
ANSWER:Step 1 of 4
Given:
We are interested in the first success among independent trials with a constant probability of success, which follows a geometric distribution.