Question

In: Advanced Math

Problem 16-03 Grear Tire Company has produced a new tire with an estimated mean lifetime mileage...

Problem 16-03

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.

  1. For each tire sold, what is the expected cost of the promotion? If required, round your answer to two decimal places.


  2. What is the probability that Grear will refund more than $50 for a tire? If required, round your answer to three decimal places.


  3. What mileage should Grear set the promotion claim if it wants the expected cost to be $2.00? If required, round your answer to the hundreds place.

    miles

Solutions

Expert Solution

Solution:

Formula used for simulation of tire life in Excel range B2:B502 =NORMINV(RAND(),36500,5000)

The simulation model in excel and calculation of the answers is given below alongwith formulas:


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