1. Microchip Contract A company receives an order for five custom made microchips at a price of $7,500 each. The company will produce the chips one by one using a complex process which has only a 67% chance of producing a defect-free chip at each trial. After five defective chips are produced the process will be stopped. A cost accountant at the company has prepared the following cost report: The cost of production includes a $14,800 fixed cost and a $2,700 unit variable cost. Thus if X number of chips are produced, the total cost of production would be 14,800 + 2,700X dollars. The revenue minus the cost of production will be the profit. After some analysis, the finance manager of the company says that the risk may be too high and thinks the order should not be accepted.

a) What are the possible values X can take? What are the probabilities of these possible values?

1. b) What is the expected value and standard deviation of X?
2. c) What is the expected value and the standard deviation of the profit?