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?

Question

Massey

Business

26 November, 19:17

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?

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Answers (1)

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Jimena · Answer 1

Their expected gain per package is $1.9115

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