Suppose That for a Particular Piece of Machinery, the Frequency

question 4

Multiple Choice

Suppose that for a particular piece of machinery, the frequency distribution of monthly breakdowns is as follows: $$\begin{array} { c l } \text { Number of Breakdowns } & \text { Prob. } \\\hline 0 & 0.50 \\1 & 0.25 \\2 & 0.10 \\3 & 0.10 \\4 & 0.05\end{array}$$ The cost of a breakdown is $2,000, and the cost of a preventive maintenance program is $2,000 per month. If the preventive maintenance program is adopted, the probability of a machine breakdown is negligible. How much better off per month would the firm be if it adopted preventive maintenance?

• A) $100 worse off
• B) $200 worse off
• C) $100 better off
• D) $200 better off
• E) $2,000 better off

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