Is this company a good idea for Joey based on the information below?

Question

Joey has determine that the probability of someone cracking their iphone screen in any given month is 4% and fixing it would cost Joey $43 per phone. Joey is considering charging $9.99 pe month for this insurance policy. Is this company a good idea or joey based on the given figures?

Answer 1

Joey can expect someone's cell phone to break 4% of the time in a given month, which is 4/100 or 1/25 times per month. That means Joey can expect a cell phone to break once every 25 months.

 

For 25 months, a user would pay $9.99(25) = $249.75 and Joey would pay $43 to fix the phone once. Joey would make a total of $249.75 - $43 = $206.75 for every customer every 25 months.

 

This company is therefore a good idea for Joey.