Which of the Following Warranty Plans Has a Higher Expected

question 18

Multiple Choice

Which of the following warranty plans has a higher expected value for the customer? Plan A covers all possible problems with 30% probability; Plan B completely covers 30% of the possible problems, and offers no coverage on the remaining 70% of the problems.(Assume the individual payout is about the same on average for each of the problems covered in Plan B compared to those not covered.)

• A)Plan A has a higher expected value for the customer.
• B)Plan B has a higher expected value for the customer.
• C)Plans A and B have the same expected value for the customer.
• D)Not enough information to tell.

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Definitions:

Assignor

A party who transfers their rights or interests in a contract or property to another party, known as the assignee.

Mirror-Image Rule

A principle in contract law stating that an offer must be accepted exactly without modifications for a valid contract to be formed.

Industry-Specific

Refers to products, services, or standards that are specific to a particular industry or sector.

Restatement of Contracts

A comprehensive compilation of legal principles regarding contract law intended to clarify, modernize, and illustrate current legal practices.