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What is the expected cost of the promotion

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Grear Tire Company has produced a new tire with an estimated mean lifetime mileage of 36,500 miles. Management also believes that the standard deviation is 5000 miles and that tire mileage is normally distributed. To promote the new tire, Grear has offered to refund some money if the tire fails to reach 30,000 miles before the tire needs to be replaced. Specifically, for tires with a lifetime below 30,000 miles, Grear will refund a customer $1 per 100 miles short of 30,000.

(a) For each tire sold, what is the expected cost of the promotion?

(b) What is the probability that Grear will refund more than $50 for a tire?

(c) What mileage should Grear set the promotion claim if it wants the expected cost to be $2.00?

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Solution contains the formula Normsdist(z) in the excel to find the probability whose z score is less than that. Also Z score is calculated as z score = (X value - Mean )/Standard deviation. Also expected cost is given as Sum of product of all probabilities with their corresponding cost.

Reference no: EM131119538

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inf1119538

8/29/2016 2:25:56 AM

Dear Team, thanks for sending the complete solution with excel file. I really wanted to get the calculations that you have provided without even telling me. You guys ROCK...

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