Question

From previous records a shipping company knows that the cost to deliver a small package within 24 hours is $15.50. The company charges $17.95 for shipping but guarantees to refund the full charge if the delivery is not made within 24 hours. If the company fails to deliver within the 24-hour window only 3% of the time, what is their expected gain per package?

Answer 1

Their expected gain per package is $1.9115

Step-by-step explanation:

Expected gain per package

= (what it gets if delivery is made)(probability delivery is made) + (what it loses if delivery is not made)(probability delivery is not made)

= (17.95 - 15.50)*(0.97) + (-15.50)*(0.03)

= 2.3765 - 0.465

= 1.9115

Therefore, Their expected gain per package is $1.9115