Question 8.90

image 59. A company is considering offering an extended warranty on new washing machines. The company looks at past repair records and determines that there are two outcomes: an 85% probability of needing no repairs, and a 15% probability of needing a $200 repair during the warranty period. To help the company set a price for an extended warranty on new washing machines, determine the mean outcome for this model. This would be the break-even price for a company selling the extended warranties. (The company, of course, will charge more than this in order to make a profit.)

59.

Since , the breakeven price would be $30.