The New York Times sells a weekly magazine which advertises local second-hand goods. The owner can buy the magazine for 15 cents each and sell them at the retail price of 25 cents. At the end of each week unsold magazines are obsolete and have no value.
The New York Times sells a weekly magazine which advertises local second-hand goods. The
owner can buy the magazine for 15 cents each and sell them at the retail price of 25 cents. At
the end of each week unsold magazines are obsolete and have no value.
The owner estimates a probability distribution for weekly demand which looks like this:
Weekly demand in units Probability
10 0.20
15 0.55
20 0.25
1.00
(i) What is the EV of demand?
(ii) If the owner is to order a fixed quantity of magazines per week how many should that be?
Assume no seasonal variations in demand.
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