Math/Physic/Economic/Statistic Problems
Question 3. A tire manufacturer warranties its tires to last at least 20,000 miles or “you get a new set of tires.” In its experience, a set of these tires lasts on average 26,000 miles with a standard deviation of 5,000 miles.
Assume that the wear is normally distributed. The manufacturer profits $200 on each set sold, and replacing a set costs the manufacturer $400.
What is the probability that a set of tires wears out before 20,000 miles?
What is the probability that the manufacturer turns a profit on selling a set to one customer?
If the manufacturer sells 500 sets of tires, what is the probability that it earns a profit after paying for any replacements? Assume that the purchases are made around the country and that the drivers experience independent amounts of wear.
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