A company estimates that 0.9% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $300. If they offer a 2 year extended warranty for $36, what is the company's expected value of each warranty sold?
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The replacement cost is $300, but the customer paid $36 for the extended warranty, so the cost to the company is $300 - $36 = $264. Show more…
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