Appliances Unlimited (AU) sells refrigerators. Any refrigerator that fails before it is three years old is replaced for free. Of all refrigerators, 2% fail during their first year of operation; 4% of all one-year-old refrigerators fail during their second year of operation; and 6% of all two-year-old refrigerators fail during their third year of operation.
a. Use simulation to estimate the fraction of all refrigerators that will have to be replaced.
b. It costs $750 to replace a refrigerator, and AU sells 15,000 refrigerators per year. If the warranty period were reduced to two years, how much per year in replacement costs would be saved?
