The Binomial Distribution Is Frequently Used to Help Companies Decide

question 26

Essay

The binomial distribution is frequently used to help companies decide whether to accept or reject a shipment based on the results of a random sample of items from the shipment. For instance, suppose a contract calls for, at most, 10 percent of the items in a shipment to be red. To check this without looking at every item in the large shipment, a sample of n = 10 items is selected. If 1 or fewer are red, the shipment is accepted; otherwise it is rejected. Using probability, determine whether this is a "good" sampling plan. (Assume that a bad shipment is one that has 20 percent reds.)

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Definitions:

Price Ceiling

A legally imposed maximum price for goods or services, intended to protect consumers from high prices.

Binding Rent Control

A regulation that sets a maximum price for rented property below the market equilibrium price, leading to a shortage of available rental units.

Landlords Leaving

The phenomenon where property owners exit the rental market, which can be due to various factors including regulatory changes or shifts in market conditions.

Binding Price Ceiling

A maximum price set by the government below the equilibrium price, causing shortages.