If the cost of replacing a defective poster once it has been shipped is $10.00, while the cost of complete 100% inspection prior to shipment is $.50 per poster, at what point is she indifferent between complete inspection and shipment without inspection?
A)5%
B)10%
C)12%
D)20%
E)25%

Question

Quizplus · Accepted Answer

The cost of replacing a defective poster is $10.00, and the cost of inspecting each poster is $0.50. She is indifferent when the cost of inspection equals the expected cost of replacement. If x is the defect rate, then 0.50 = 10x, solving for x gives x = 0.05 or 5%.

If the Cost of Replacing a Defective Poster Once It