Wholemark is an Internet order business that sells one popular New Year greeting

Question

Wholemark is an Internet order business that sells one popular New Year greeting card once a year. The cost of the paper on which the card is printed is $0.25 per card, and the cost of printing is $0.60 per card. The company receives $3.90 per card sold. Since the cards have the current year printed on them, unsold cards have no salvage value. Their customers are from the four areas: Los Angeles, Santa Monica, Hollywood, and Pasadena. Based on past data, the number of customers from each of the four regions is normally distributed with mean 1,700 and standard deviation 950. (Assume these four are independent.) What is the optimal production quantity for the card? (Round your answer to the nearest whole number.)

Explanation / Answer

Answer: Here the number of customers (mean ) = Demand = 1700

standard deviation = 950

Also SP per card = $3.9 per card

and CP per card = $0.25+$0.6 = $0.85

Therefore profit = $3.05

so

p = $3.9

c = $0.85

v = $0

(p-c)/(p-v)= (3.9-0.85)/3.9 = 0.782

z value = 0.7789

So optimal quantity = 1700 + 950 x 0.7789 = 2439.9 units

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