[3 points] A manufacturer of designer jeans is desiring to know the potential pr

Question

[3 points] A manufacturer of designer jeans is desiring to know the potential profit associated to building a small factory in a particular location. The proft per pair of jeans manufactured is estimated as $15. A small factory will have an annual cost of $200,000 and provide a production capacity of 50,000 jeans per year. Four levels of product demand are possible. They are 10,000 9. (probability of 0.1), 20,000 (probability of 0.4), 50,000 (probability of 0.2), and 100,000 (probability of 0.3) pairs of jeans per year. Compute the expected profit (in thousands of dollars) for building the small factory 20D, 006 et 4 levels of procnction

Explanation / Answer

profit when demand is 10000 X1=total margin for jeans-total cost =15*10000-200000= -50000

profit when demand is 20000 X2=total margin for jeans-total cost =15*20000-200000= 100000

profit when demand is 50000 X3=total margin for jeans-total cost =15*50000-200000= 550000

profit when demand is 100000 X4=total margin for jeans-total cost =15*50000-200000= 550000

therefore expected profit E(X) =E(X1)+E(X2)+E(X3)+E(X4) =0.1*(-50000)+0.4*100000+0.2*550000+0.3*550000

=$310000

please revert for any clarification required.

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