Question

Suppose GTC developed a new steel-belted radial tire to be sold through a national chain of distribution stores. Because the tire is a new product, Grear’s managers believe that millage guarantee offered with the tire will be an important factor in the acceptance of the product. Before finalizing the tire mileage guarantee policy, Grear’s managers want probability information about χ = number of miles the tire will last.   From actual road test with the tires, Grear’s engineering group estimated that the mean tire mileage is µ = 36,500 miles and the σ = 5000. Data collected indicate that normal distribution is a reasonable assumption.

If Gear is considering guarantee offer for no more than 10% of the tires, what should be the guarantee mileage? That is, what should the guarantee mileage be if Grear wants no more than 10% of the tires to be eligible for discount guarantee?

Answer 1