Anonymous

# The owner of a small firm has just purchased a personal computer?

The owner of a small firm has just purchased a personal computer, which she expects will serve her for the next two years. The owner has been told that she must buy a surge suppressor to provide protection for her new hardware against possible surges or variations in the electrical current, which have the capacity to damage the computer. The amount of damage to the computer depends on the strength of the surge. It has been estimated that there is a 2% chance of incurring €500 damage, a 3% chance of incurring €300 damage, and 8% chance of €100 damage. An inexpensive suppressor, which would provide protection for only one surge can be purchaesd. How much should the owner be willing to pay if she makes decisions on the basis of expected value?

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• Anonymous
2 months ago

lazy homework cheater.

• 2 months ago

About triple the actual cost of a surge suppressor.

For your homework, multiply the chance of each potential loss by the amount of the loss, and add the results. This gives the expect value of the loss. That is also the amount she should be willing to pay to protect against the loss.

• 2 months ago

Chance of a surge is:

.02 * 500 + .03 * 300 + .08 * 10

10 + 9 + 8 = 27

Buy it if it costs less than 27 pounds.