A small market orders copies of a certain magazine for its magazine rack each we

Question

A small market orders copies of a certain magazine for its magazine rack each week. Let random variable X equal to demand for the magazine, with a probability mass function shown below. Suppose the store owner actually pays $2.00 for each copy of the magazine and the price to customers is $3.00. If magazines left at the end of the week have no salvage value, is it better to order three or four copies of the magazine? [Hint: For both three and four copies ordered, express net revenue as a function of demand X, and then compute the expected revenue.]

P(X) |1/15 2/15 3/15 4/15 3/15 2/15 Ans:

Explanation / Answer

Following table shows wxpected revenue for different number of magzines ordered

We can see from the table above that the expected revenue is maximum when 4 magzines are purchased to sell.

x 1 2 3 4 5 6 7 8 E(x) Profit(1) 1 1 1 1 1 1 1 1 1 Profit(2) 0 2 2 2 2 2 2 2 1.875 Profit(3) -1 1 3 3 3 3 3 3 2.5 Profit(4) -2 0 2 4 4 4 4 4 2.75 Profit(5) -3 -1 1 3 5 5 5 5 2.5 Profit(6) -4 -2 0 2 4 6 6 6 1.875 Profit(7) -5 -3 -1 1 3 5 7 7 1.125 Profit(8) -6 -4 -2 0 2 4 6 8 0.25 P(X=x) 1/16 2/16 3/16 4/16 3/16 1/16 1/16 1/16

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.