A store must commit to a stock quantity of a particular item before demand for that item will be know. Historically, demand for this item follows this probability distribution:
Demand (X) P(Demand = X)
10 0.20
11 0.35
12 0.30
13 0.10
14 0.05
The item in question has a retail price of $70, a wholesale cost of $60, and a salvage value of $8.
Suppose this store inadvertently stocked one more unit than is optimal. By how much would this store’s expected value decline?
Expert Answer
first get the optimal stock count as follows-
https://d2vlcm61l7u1fs.cloudfront.net/media%2F4d6%2F4d6ae7d7-2832-4c32-ad2c-8bc96b0f3024%2Fphp5Lcrsq.png
11.45 ~ ( appr 11) shows the optimal count of stock.
So at 11.45 it will have max chances of
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