As the Buyer for Your Business, You Can Choose to Buy

question 6

Multiple Choice

As the buyer for your business, you can choose to buy an extended warranty for each new computer for $200 each. During this period, each computer will experience either a minor ($100) or major ($500) repair bill. Repairs for each computer under warranty are reduced by 50% to $50 or $250. Assume the computer company wants to make as much money as possible, and you wish to spend as little as possible. What is your optimal strategy?

• A) Never buy the warranty.
• B) Always buy the warranty.
• C) Buy the warranty for less than half of the computers.
• D) Buy the warranty for more than half of the computers.

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Definitions:

Industry

A sector of the economy made up of manufacturing, production, or services in a similar area of business, contributing to the production of goods or services.

Collusion

Collusion is a non-competitive, secret, and sometimes illegal agreement between competitors to manipulate market conditions by coordinating prices, production, or marketing strategies.

Oligopoly

An economic scenario in which a few large companies control the majority of the industry, resulting in minimal competition and possibly increased prices for buyers.

Profit

The financial gain made in a transaction or operation, calculated as total revenues minus total costs.