When you buy a set of speakers, Best Buy asks if you would like to purchase insu
ID: 1178600 • Letter: W
Question
When you buy a set of speakers, Best Buy asks if you would like to purchase insurance for your speakers. Assume that paying for new speakers for customers who listen to music at a reasonable level (thus minimizing damage) costs, on average, $150, and paying for new speakers for customers who listen to music very loudly (more likely to damage the speakers) costs, on average, $1000. Individuals know whether they like music at a reasonable level or at a loud level, but Best Buy can assume that 40% of listeners are reasonable listeners, and 60% are loud listeners. How much does Best Buy have to charge in order to break even?
A $660 B $1000 C $150 D $575
Explanation / Answer
The mean expenditure incurred by Best Buy = 0.40 x 150 + 0.60 x 1000 = $660
So, in order to break even, Best Buy has to charge $660 per customer
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