Could you help me correct this expected value problem? Got it wrong?

As I see it, the cost to make the computer processor is $3204, so when it is sold, they make a profit of $396.

3600 - 396 = 3204

If it is defective, they had to spend $3204 to make a processor, but they got no money since they refunded everything.

So:

11% of the time they lose $3204.

89% of the time they make a profit of $396.

E(X) = (0.11 * -3204) + (0.89 * 396)

E(X) = -352.44 + 352.44

E(X) = 0

So basically they are going to make no money. Every bit of profit they would have made on the 89% that are good will go to pay for the 11% that are returned.

Answer:

(c) They will neither make nor lose any money.

EDIT:

I think you said they would lose $3600 if a processor was refunded, but that's the marked up price (including profit). The only loss is the *cost* of making the processor ($3204).

Manufacturing a processor costs $3600 - $396 = $3204

So if the processor is defective, they lose $3204, and if it's not, they profit $396

Net profit: (11/100)(-3204) + (89/100)(396) = -352.44 + 352.44 = 0

They will break even.

Okay I  updated my question with the details from the photo!

too small , can't be read