An elevator rail is assumed to meet specifications if its diameter is between 0.98 and 1.01 inches. Each year a company produces 100, 000 elevator rails. For a cost of $10/σ 2 per year the company can rent a machine that produces elevator rails whose diameters have a standard deviation of σ. (The idea is that the company must pay more for a smaller variance.)
Each such machine will produce rails having a mean diameter of one inch. Any rail that does not meet specifications must be reworked at a cost of $12. Assume that the diameter of an elevator rail follows a normal distribution.
a. What standard deviation (within 0.001 inch) minimizes the annual cost of producing elevator rails? You do not need to try standard deviations in excess of 0.02 inch.
b. For your answer in part a, one elevator rail in 1000 will be at least how many inches in diameter?