Exercise 1

A manufacturer of quartz watches uses inspection to screen defective watches before they are
shipped. Watches rejected by the inspector are reset by the factory. If a sold watch turns out to
perform outside the warranted ± 5 s/month tolerance, the customer is entitled to a replacement.
However, a replacement costs the customer $ 25.00/watch net in postage and inconvenience.
a) Determine the loss function.
L(x)= K(x-t)2
Despejando k:

25= K (5-0)2
25= K (25)
25
=𝐾
25
1= K

b) If the cost of setting a watch is $ 2.00 at the factory, verify that the inspector should use the
tolerance limit ± 1.41 s/month. Discuss why he should not use the ± 5 s/month limit.
L(x)= K(x-t)2
Despejando k:

2= K (1.41-0)2
2= K (1.988)
2
=𝐾
1.988
1.006= K

Si se utiliza una menor tolerancia evitamos que el cliente llegue a pagar $25 y con ello no perdemos al
cliente ya que es mejor poner punto de control interno.

c) If the mass-produced watches submitted for inspection show an average deviation of +10
s/month from perfect performance, with a standard deviation of 5 s/month, and if the factory
produces 10,000 watches per month, estimate the total monthly loss caused to society if the
factory ships the watches uninspected.
K=1 𝐿̅ = 𝑘 [𝜎 2 + (𝑦 𝑛 − 𝑚)2 ] (125)(10000)= 1´250,000
σ=5 𝐿̅ = 1 [52 + (10)2 ]
y=10
𝐿̅ = 1 [25 + 100]
m=0
𝐿̅ = 125

La perdida a la sociedad que causaría enviar los relojes sin inspección al mes sería de 1´250,000
 d) Suppose that the manufacturer uses a different production method that reduces the average
deviation to 0 s/month while retaining the 5 s/month standard deviation. If the manufacturer
now ships the watches uninspected, verify that the reduction in society’s total loss will be $
1,000,000 /month.

K=1 𝐿̅ = 𝑘 [𝜎 2 + (𝑦 𝑛 − 𝑚)2 ] (25)(10000)= 250,000

σ=5
𝐿̅ = 1 [52 + (0 − 0)2 ]
y=0
𝐿̅ = 1 (25)
m=0
𝐿̅ = 25

Envase a lo anterior se tiene que si redujo la pérdida total de 1´000,000.

e) If the performance of the watches produced has the normal distribution, estimate the number of
watches produced/month under the new method (yielding 0 s/month average and 5 s/month standard
deviation) that will fail to meet the ± 1.41 s/month tolerance limit. How many of these watches will
exceed the ± 5 s/month customer tolerance?