Question: A production process generates a stable 3% defect rate. (So each unit produced has probability p = .03 of being defective, and probability 1-p =
A production process generates a stable 3% defect rate. (So each unit produced has probability p = .03 of being defective, and probability 1-p = .97 of being "good".) The cost to inspect is $.50 per unit inspected. The external failure cost (additional costs we incur if we sell a defective unit to a customer) are $500 per defective unit sold. On an expected value basis, should we inspect these units prior to selling them? SHOW YOUR WORK.
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