If the cost of replacing a defective Z-box game once it has been shipped is $5.00, while the cost of complete (100%) inspection prior to shipment is $.20 each, at what point is he indifferent between complete inspection and shipment without inspection?
A)0% defectives
B)4% defectives
C)5% defectives
D)9% defectives
E)22% defectives

Question

Quizplus · Accepted Answer

The cost of replacing a defective game is $5.00. If 4% of the games are defective, the expected cost of replacement is 0.04 * $5.00 = $0.20, which equals the cost of inspecting each game. Thus, at 4% defectives, the costs are equal, making him indifferent.

If the Cost of Replacing a Defective Z-Box Game Once