Suppose Your Firm Is Buying Five New Computers

question 45

Short Answer

Suppose your firm is buying five new computers. The manufacturer offers a warranty to replace any computer that breaks down within three years. Suppose there is a 25% chance that any given computer breaks down within three years.
A) What is the probability that exactly one of the computers breaks down within five years?
B) What is the probability that at least one of the computers breaks down within five years?
C) Suppose the warranty for five computers costs $700, while a new computer costs $600. Is the warranty less expensive than the expected cost of replacing the broken computers?

• A) What is the probability that exactly one of the computers breaks down within five years?
• B) What is the probability that at least one of the computers breaks down within five years?
• C) Suppose the warranty for five computers costs $700, while a new computer costs $600. Is the warranty less expensive than the expected cost of replacing the broken computers?

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Definitions:

Total SS

Total Sum of Squares (Total SS) represents the total variance in the observed data, measuring the overall deviation from the mean.

SSE

Sum of Squared Errors: the total deviation of the response values from the fit to an estimation model.

Randomization

A process in experimental design to ensure every participant has an equal chance of being assigned to any group, reducing bias.

Extraneous Factors

Variables that are not of interest in a study but could affect its outcome.