Answer
1.75% is rejected.
Work Step by Step
$P(x)=\frac{(λt)^x}{x!}e^{-λt}$
One flaw in every 500 yards: $\frac{1}{500}=0.002$ flaw per yard. So,
λ = 0.002
t = 100 (100-yard rolls)
$P(fewer~than~2)=P(X\lt2)=P(0)+P(1)=\frac{(0.002\times100)^0}{0!}e^{-0.002\times100}+\frac{(0.002\times100)^1}{1!}e^{-0.002\times100}=\frac{1}{1}e^{-0.2}+\frac{0.2}{1}e^{-0.2}=0.9825$
The probability that $x\geq2$ is the complement of the probability that $x\lt2$
Using the Complement Rule (see page 275):
$P(two~or~more)=P(X\geq2)=1-P(X\lt2)=1-0.9825=0.0175=1.75$%
