Faulty Spares
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Statistics - It costs $50 to find out whether a spare part is required for repairing a failed device is...?
It costs $50 to find out whether a spare part required for repairing a failed device is faulty or not. Installing a faulty spare part causes damage of $1000. Is it on average more profitable to use a spare part without checking if:
(i) 1% of all spare parts of that type are faulty?
(ii) 3% of all spare parts of that type are faulty?
(iii) 10% of all spare parts of type are faulty?
Please explain the answers. Thanks!
lets say there are 100 spare parts
i) it would mean 1 faulty spare part
so checking = 50* 100 = 5000
not checking = 1000 * 1 = 1000
1000 < 5000 more profitable to use without checking
ii) it would mean 3 faulty spare parts
50 * 100 = 5000
1000 * 3 = 3000
3000 < 5000 more profitable to use without checking
iii) it would mean 10 faulty spare parts
50 * 1000 = 5000
1000 * 10 = 10000
10000 > 5000 no not more profitable, in this case it is less profitable not checking
hope this helps
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