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A merchant stocks a certain perishable item. She knows
Chapter 3, Problem 211SE(choose chapter or problem)
Problem 211SE
A merchant stocks a certain perishable item. She knows that on any given day she will have a demand for either two, three, or four of these items with probabilities .1, .4, and .5, respectively. She buys the items for $1.00 each and sells them for $1.20 each. If any are left at the end of the day, they represent a total loss. How many items should the merchant stock in order to maximize her expected daily profit?
Questions & Answers
QUESTION:
Problem 211SE
A merchant stocks a certain perishable item. She knows that on any given day she will have a demand for either two, three, or four of these items with probabilities .1, .4, and .5, respectively. She buys the items for $1.00 each and sells them for $1.20 each. If any are left at the end of the day, they represent a total loss. How many items should the merchant stock in order to maximize her expected daily profit?
ANSWER:
Solution:
Step 1 of 5:
It is given that a merchant stocks some perishable items in her shop and she knew that she will have demand for either 2 or 3 or 4 of these items with probability 0.1,0.4,0.5 respectively.
She purchases the item at $1 and sells at $1.20.If the item is left in the stock it causes loss to the merchant.
We need to find the stock size in order to maximize the profit of the merchant.