Question: The owner of a small firm has just purchased a
The owner of a small firm has just purchased a personal computer, which she expects will serve her for the next 2 years. The owner has been told that she "must" buy a surge suppressor to provide protection for her new hardware against possible surges or variations in the electrical current, which have the capacity to damage the computer. The amount of damage to the computer depends on the strength of the surge. It has been estimated that there is a 1% chance of incurring $400 damage, a 2% chance of incurring $200 damage, and 10% chance of $100 damage. An inexpensive suppressor, which would provide protection for only one surge can be purchased. How much should the owner be willing to pay if she makes decisions on the basis of expected value?
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