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Cost analysis of pro rata and free-replacement warranties. (English) Zbl 0536.90041
Summary: This article examines the short run total costs and long run average costs of products under warranty. Formulae for both consumer cost under warranty and producer profit are derived. The results in the case of the pro rata warranty correct a mistake appearing in a paper of W. R. Blischke and E. M. Scheuer [ibid. 22, 681-696 (1975; Zbl 0331.60061)]. We also show that expected average cost to both the producer and the consumer of a product under warranty depends on both the mean of the product lifetime distribution and on its failure rate.

MSC:
90B30 Production models
90B25 Reliability, availability, maintenance, inspection in operations research
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