Appliances Unlimited (AU) sells refrigerators. Any refrigerator that fails before it is three…

Appliances Unlimited (AU) sells refrigerators. Any refrigerator that fails before it is three years old is replaced for free. Of all refrigerators, 3% fail during their first year of operation; 5% of all one-year-old refrigerators fail during their second year of operation; and 7% 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 $500 to replace a refrigerator, and AU sells 10,000 refrigerators per year. If the warranty period were reduced to two years, how much per year in replacement costs would be saved?