A cell phone company offers a simple extended warranty plan. Ifyour phone is damaged, they will repair it for up to $50. If youlose or destroy your phone, they will give you a $200 vouchertowards a new phone. The company believes that 5% of customers willneed the replacement voucher and 10% will request a repair. 1. Ifthe company charges $25 for this extended warranty, what is theexpected value of the profit they will earn? 2. What is thestandard deviation of their profit? 3. Suppose the company collects10 warranty plans on one day. What is the mean of the company'stotal profit? 4. What is the standard deviation of the 10 totalwarranty plans? What assumption does this calculation require? Doyou think this assumption is reasonable? 5. What are the mean andstandard deviation for the profit on a 1000 plans? 6. What do youranswers to the previous question tell you about the company'slikelihood of making a profit? 7. Is the $25 warranty a wisepurchase for you? Given that you will probably buy dozens ofdevices over the next decade, are these types of warranties a wisepurchase for you?
