Hello! I need help with the following problem. Thank you in advance..! You own a store that sells a stove for $1000. You purchase the stoves from a distributor for$800. The lifetime of the stove is described by an exponential distribution with parameter A =1/10.You would like to offer an extended warranty on the stove: The customer will pay you $C forthe warranty. If the stove breaks within r years, then you will replace the stove (which will costyou $800). If the stove lasts longer than r years, you pay nothing to the customer.(a) What is your expected profit from the warranty? (This answer will depend on C and r.)(b) If you want the warranty to last five years, what will the cost C of the warranty need to be foryou to break even (profit = 0) on average?

Answered: Image /qna-images/answer/1b7743ef-87a2-4070-bf92-7afe306a0743.jpg

(a) What is your expected profit from the warranty? (This answer will depend on C and r.) (b) If you want the warranty to last five years, what will the cost C of the warranty need to be for you to break even (profit = 0) on average?

(a) What is your expected profit from the warranty? (This answer will depend on C and r.) (b) If you want the warranty to last five years, what will the cost C of the warranty need to be for you to break even (profit = 0) on average?

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

Hello! I need help with the following problem. Thank you in advance..!

You own a store that sells a stove for $1000. You purchase the stoves from a distributor for
$800. The lifetime of the stove is described by an exponential distribution with parameter A =
1/10.
You would like to offer an extended warranty on the stove: The customer will pay you $C for
the warranty. If the stove breaks within r years, then you will replace the stove (which will cost
you $800). If the stove lasts longer than r years, you pay nothing to the customer.
(a) What is your expected profit from the warranty? (This answer will depend on C and r.)
(b) If you want the warranty to last five years, what will the cost C of the warranty need to be for
you to break even (profit = 0) on average?

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