G.313. Exercise # 1SpecificationsProbability of System CrashCost of a System CrashHours of OperationOperational Cost / hourPricePossible New System UnderConsideration For Purchase€1%100,0002,500Existing System or Next BestAlternative (NBA)15.00 €€What to do:Please show your logic of how you would determine what the P (Price) of the new system should be.Hint: The price is that price at which you would be indifferent between both options.20%100,0002,50010.0075,000.00

Probability of system crash (p) 1%=0.01 20%=0.2 Cost of a system crash (C) ∈100,000…

Answered: Please show your logic of how you would…

Please show your logic of how you would determine what the P (Price) of the new system should be. Hint: The price is that price at which you would be indifferent between both options.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

G.313.

Exercise # 1
Specifications
Probability of System Crash
Cost of a System Crash
Hours of Operation
Operational Cost / hour
Price
Possible New System Under
Consideration For Purchase
€
1%
100,000
2,500
Existing System or Next Best
Alternative (NBA)
15.00 €
€
What to do:
Please show your logic of how you would determine what the P (Price) of the new system should be.
Hint: The price is that price at which you would be indifferent between both options.
20%
100,000
2,500
10.00
75,000.00

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