Solution Found!
In Example 4b, suppose that the department store incurs an
Chapter 4, Problem 34P(choose chapter or problem)
Problem 34P
In Example 4b, suppose that the department store incurs an additional cost of c for each unit of unmet demand. (This type of cost is often referred to as a goodwill cost because the store loses the goodwill of those customers whose demands it cannot meet.) Compute the expected profit when the store stocks 5 units, and determine the value of s that maximizes the expected profit.
Questions & Answers
QUESTION:
Problem 34P
In Example 4b, suppose that the department store incurs an additional cost of c for each unit of unmet demand. (This type of cost is often referred to as a goodwill cost because the store loses the goodwill of those customers whose demands it cannot meet.) Compute the expected profit when the store stocks 5 units, and determine the value of s that maximizes the expected profit.
ANSWER:
Solution 34P
Step1 of 2:
From the given problem we have a store incurs an additional cost of c for each unit of unmet demand.
We need to compute the expected profit when the store stocks 5 units, and determine the value of s that maximizes the expected profit.
Step2 of 2:
Consider, For a cost c per unit of unmet demand:
if
if
Now,