Final Exam Flashcards
Look at Day 23 Quiz
A production process generates a stable 3% defect rate. (So each unit produced has probability p = .03 of being defective, and probability 1-p = .97 of being “good”.)
The cost to inspect is $.50 per unit inspected. The external failure cost (additional costs we incur if we sell a defective unit to a customer) are $500 per defective unit sold.
On an expected value basis, should we inspect these units prior to selling them?
SHOW YOUR WORK.
We should inspect these units prior to selling them.
Using 100 units.
100 x .03= 3 units (number of defectives)
.50 x 100 units = $50 (Total cost of inspecting)
500 x 3 = 1500 (Amount saved)
Amount saved is greater than the total cost because of the inspection
A production process generates a stable 3% defect rate. (So each unit produced has probability p = .03 of being defective, and probability 1-p = .97 of being “good”.)
The cost to inspect is $.50 per unit inspected. The external failure cost (additional costs we incur if we sell a defective unit to a customer) are $500 per defective unit sold.
How small does p from the previous question need to be, before the evaluation is tied between inspect vs. don’t inspect?
Tied when k1 = p x k2
Tied when p = k1 / k2
k1/k2 = .50/500 = .001
