A manufacturer of industrial sales has production capacity of 1,000 units per da
ID: 405489 • Letter: A
Question
A manufacturer of industrial sales has production capacity of 1,000 units per day. Currently, the firm sells production capacity for $10 per unit. At this price, all production capacity gets booked about one week in advance. A group of customers have said that they would be willing to pay $15 per unit if capacity was available on the last day. About ten days in advance, demand for the high-price segment is normally distributed with a mean of 250 and a standard deviation of 100. How much production capacity should the manufacturer reserve for the last day?
Explanation / Answer
Revenue from segment A= 15 per unit
Revenue from segment b= 10 per unit
Mean demand for segment A D= 250 unit
Standard deviation of demand for segment A da=100 unit
Ca= NORMINV (1-po/pa, Da,sigma a)
= NORMINV (1-10/15, 250,100)
=206.9272=207 units capacity
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