A fast food restaurant just leased a new freezer and food fryer for three years. The service contract for the freezer offers unlimited repairs for a fee of $125 a year plus a $35 service charge for each repair needed. The restaurant’s research suggested that during a given year 80% of these freezers need no repairs, 11% needed to be serviced once, 5% twice, 4% three times, and none required more than three repairs.
-What is the standard deviation of the number of repairs that may be required during the three- year term of the lease? On what assumption does your calculation rest? Do you think this assumption is reasonable?

Question

Quizplus · Accepted Answer

The Answer is

\operatorname { Var } \left( X _ { 1 } + X _ { 2 } + X _ { 3 } \right) = 0.561 + 0.561 + 0.561 = 1.683

, so standard deviation

( C ) = 1.297

The assumption is that the number of repairs is independent from year to year. This might be incorrect because some freezers might need more service than others.

A Fast Food Restaurant Just Leased a New Freezer and Food