A company makes a product and has no way to determine which ones are faulty until an unhappy customer returns it. Three percent of the products are faulty and will cost the company $200 each in customer service and repairs. If the company does not refund the customer when repairing the item, how much should the company charge to make a profit of $2.00 per item?
The expected customer-service and repair cost per product is 3% of $200, or 0.03 × $200 = $6. To earn $2 profit per product, the company should charge $6 + $2 = $8. The correct choice is $8.00.
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