Great Southern Consultants Group's Computer System Has Been Down Several

question 48

Essay

Great Southern Consultants Group's computer system has been down several times over the past few months,as shown below.
Each time the system is down,the firm loses an average of $400 in time and service expenses.They are considering signing a contract for preventive maintenance.With preventive maintenance,the system would be down on average only 0.5 per month.The monthly cost of preventive maintenance would be $200 a month.Which is cheaper,breakdown or preventive maintenance?

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Definitions:

Adverse Selection

A situation in insurance and finance where individuals with higher risks are more likely to purchase or participate in a plan, leading to higher than expected costs for insurers or lenders.

Marginal Benefit

The extra utility or satisfaction obtained through the consumption of an additional unit of a good or service.

Pollution Abatement

Actions or measures taken to reduce, control, or eliminate pollution from various sources.

Producer Surplus

The difference between the actual price a producer receives (or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price.