Question Below

Question

A company makes electronic gadgets. One out of every 50 gadgets is faulty, but the company

doesnt know which ones are faulty until a buyer complains. Suppose the company makes a

$3 profit on the sale of any working gadget, but suffers a loss of $80 for every faulty gadget

because they have to repair the unit. Check whether the company can expect a profit in the

long term.

Answer 1

Hi Abdullah,

 

At the rate of 1 faulty one for every 50 gadgets produced, we get a 98% success rate.  This means that for every 100 devices, 98 are good and 2 are faulty.  So, the profit margin will be [98($3)-2($80)] = $294-$160 = $134 for every 100 devices.

 

At this rate, even though they lose a good amount of the profit, they still gain some.