A department supervisor is considering purchasing one of twocomparable photocopy

Question

A department supervisor is considering purchasing one of twocomparable photocopy machines, A or B. Machine A costs $10,000 andmachine B costs $10,500. This department replaces photcopy machinesevery three years. The repair contract for machine A costs $50 permonth and covers an unlimited number of repairs. The repaircontract for machine B costs $200 per repair. Based on pastperformance, the distribution of the number op repairs needed overany one-year period for machine B is shown below Number of repairs  0         1      2         3 Probability             0.50   0.25 0.15 0.10 which machine should the supervisor purchase A department supervisor is considering purchasing one of twocomparable photocopy machines, A or B. Machine A costs $10,000 andmachine B costs $10,500. This department replaces photcopy machinesevery three years. The repair contract for machine A costs $50 permonth and covers an unlimited number of repairs. The repaircontract for machine B costs $200 per repair. Based on pastperformance, the distribution of the number op repairs needed overany one-year period for machine B is shown below Number of repairs  0         1      2         3 Probability             0.50   0.25 0.15 0.10 which machine should the supervisor purchase

Explanation / Answer

original cost of machines:
machine A=10000 now add repair costs over a 3 yearperiod  50(36)=1800......so a 3 year cost if10000+1800=$11800 :
machine B=10500 repair cost for B is 0(.5)+1(.25)+2(.15)+3(.1)=.85repairs over 3 years 10500+3(.85(200))=$11010 :
I would buy machine B :

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