The owner of a small firm has just purchased a
personal computer, which she expects will serve
her for the next two 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 550 dollar damage, 5% chance
of incurring 300 dollar damage, and 11%
chance of incurring 125 dollar damage from a surge within the next two years. 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?
Expected value =