I went to Radio Shack the other day and bought a telephone answering machine.
Q: Did I want to buy the extended warranty for $5.99? [Students: figure this one out before continuing…]
A: No.
I went to Radio Shack the other day and bought a telephone answering machine.
Q: Did I want to buy the extended warranty for $5.99? [Students: figure this one out before continuing…]
A: No.
Ah, yes, another lecture example. Assume exponentially distributed lifetimes for electronic equipment (especially things with no hard drives, not running Windows). If the warranty is for 2 years, and the manufacturer expects 1% of the products to fail during the warranty period, what proportion of the products will fail in 4 years?
Then, after a few more lectures, postulate a more clever manufacturer with Weibull-distributed lifetimes…and assign this one as homework!
probably an even easier question for an economist.
on a sidenote; there are entire segments of appliance manufacturers that have their entire profits in the extended warranty.