Question

A printing company is considering buying a new printing press. It has quotes from two different companies. Company A offers a press for $9,500 plus $75 per month for a repair contract that covers unlimited repairs. Company B offers a press for $10,500 and charges $150 per repair.
The table gives the probabilities of the numbers of repairs to the printing press offered by company
b. Number of Repairs
0 1 2 3
Probability
0.32 0.29 0.25 0.14

which offer is more cost-effective?

Answer 1

The complete problem wants to know the more cost-effective choice is the printing company replaces its press machine every four years. With this in mind, if they choose Company A, the total amount that needs to be paid to cover 12(4) = 48 months will be Company A = 9 500 + 48(750) = $13 100 As for Company B, the highest probability of not having any repairs over the four years is 0.32 while there's 0.14 chance that number of repairs will be 3 over the time the contract is applied. This means that the possible amounts to be paid to Company B are Company B = 10 500 + 0(150) = $10 500 Company B = 10 500 + 1(150) = $10 650 Company B = 10 500 + 2(150) = $10 800 Company B = 10 500 + 3(150) = $10 950 This shows that choosing the machine from Company B would be better. Hence, the answer is Company B.