the market research? M3-14 Diane Kennedy is contemplating the possibility of goi

Question

the market research? M3-14 Diane Kennedy is contemplating the possibility of going into competition with Primary Pumps, a manufacturer of industrial water pumps. Diane gathered some interesting information from a friend of hers who works for Primary. Diane has been told that the mean sales for the standard deviation is 50 units. The opportunity loss per pump is $100. Furthermore, Diane has been told that the most that Primary is willing to spend for market research for the demand potential for pumps is $500. Diane is interested in knowing the has Primary are 5,000 units and

Explanation / Answer

We are given,

Mean demand, µ = 5,000

Std deviation of demand, = 50

Opportunity loss per unit (K) = $ 100

Expected Opportunity Loss (EOL) = KsN(D) = $ 500

N(D) = EOL/(Ks) = 500/(100*50) = 0.1, N(D) is Unit normal loss integral

D = 0.90 From Appendix M3.2

D = (µ - BEP)/ = 0.90

(5000 - BEP)/50 = 0.90

Breakeven point (BEP) = 5000 + 0.90*50 = 5045

ANSWER: 5045

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