?? services is in the business of digitizing information from forms that are fil

Question

?? services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the forms that it digitized in house last year, and BPO estimated how much it would cost to digitize each form. Form Type Mix of Forms 0.5 0.5 Form Cost $3.75 $1.25 The expected cost of digitizing a form is $ Suppose the clent and Bpo agree to a deal, whereby the client pays BPO to digitize forms. The prce of each form processed is equal to cost of the form that you calculated in the previous part of the problem. Suppose that after the agreement, the client sends only forms of type A. The expected digitization cost per form of the forms sent by the client is for BPO. (Hint: Do not round your answers. Enter the loss as a positive number) per form

Explanation / Answer

1. The expected cost of digitizing a form is

0.5*3.75 + 0.5*1.25 = $ 2.5

Suppose after that agreement, the client send only forms of type A.

2. The expected digitization cost of per forms of forms sent by the client is $3.75 ( because only form A is sent to digitised so the mix form of A is 1 (not 0.5), while the client is paying only $2.5 as we find in part 1). This lead to an expected loss of (1.25) /2.5 - 3.75/ form for BPO.

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