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# 02_09ans - STAT 400 Examples for Spring 2011 5 Management...

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STAT 400 Examples for 02/09/2011 Spring 2011 5. Management of an airline knows that 0.5% of the airline’s passengers lose their luggage on domestic flights. Management also know that the average value claimed for a lost piece of luggage on domestic flights is \$600. The company is considering increasing fares by an appropriate amount to cover expected compensation to passengers who lose their luggage. By how much should the airline increase fares? Let X denote the compensation to a passenger due to lost luggage. Then X has the following probability distribution: x f (x) x f (x) \$ 0 0.995 0 \$ 600 0.005 3 1.00 \$ 3 The average compensation to each passenger due to lost luggage is \$ 3. The airline should increase fares by \$ 3 . = = = = = = = = = = = = = = = = = = = = = = = = = = = = = Suppose an insurance policy reimburses a loss up to a benefit limit of C and has a deductible of d . If the policyholder’s loss is X , then Benefit Paid = + + < - < d x d x d d x d x C C C 0 = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

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6. A grocer has shelf space for two units of a highly perishable item that must be disposed of at the end of the day if it is not sold. Each unit costs \$1.70 and sells
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02_09ans - STAT 400 Examples for Spring 2011 5 Management...

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