A small market orders copies of a certain magazine for its magazine rack each week. Let X = demand for the magazine, with pmf Suppose the store owner actually pays $2.00 for each copy of the magazine and the price to customers is $4.00. 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.]

Answer Step 1 of 4 Let Y be the profit Let X be the demand Let K be the no. of copies order y=4x-2k if k>x y=2k if kx Step 2 of 4 x P(y) If k=3 then y y*P(y) 1 1/15 4x-2k=-2 -2/15 2 2/15 4x-2k= 2 4/15 3 3/15 2k=6 here kx 18/15 4 4/15 2k=6 24/15 5 3/15 2k=6 18/15 6 2/15 18=6 12/15 Total=74/15 If k=3, E(Y)=74/15