You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,
A)you should price the warranty at less than 2% of the product price
B)you should price the warranty at exactly 2% of the product price
C)you should price the warranty at more than 2% of the product price
D)Cannot tell from this information

Question

​You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,
A)​you should price the warranty at less than 2% of the product price
B)you should price the warranty at exactly 2% of the product price
C)you should price the warranty at more than 2% of the product price
D)​Cannot tell from this information

Quizplus · Accepted Answer

The price of the extended warranty should be more than 2% of the product price. This is because the warranty covers the cost of potential product failures that would otherwise have to be paid for by the customer. By pricing the warranty higher than the expected failure rate, the company can cover the costs of the few customers whose products do fail while still generating revenue from the sale of the warranties to all customers.

​You Offer an Extended Warranty for Your Product That Is

You Offer an Extended Warranty for Your Product That Is