Reference no: EM131919079

If the product is a complete failure, the representative feels that a loss of $80,000 would be incurred. If the product is only moderately successful, a loss of $25,000 would be incurred. Insurance companies have determined that the probabilities that the product will be a failure or only moderately successful are 0.01 and 0.05, respectively. The manufacturing representative is willing to ignore all other possible losses. If the insurance company charges $2,500 for the policy, what is the profit the insurance company will make?