Large Lots is planning a seven-day promotion on a discontinued model of 31\" col
ID: 449404 • Letter: L
Question
Large Lots is planning a seven-day promotion on a discontinued model of 31" color TV sets. At a price of $575 per set, the daily demand for this type of TV has been estimated as follows: Large Lots can order up to 50 of these TVs from a surplus dealer at a cost of $325 each. This dealer has offered to buy back any unsold sets at the end of the promotion for $250 each. a. How many TVs should Large Lots order if it wants to maximize the expected profit on this promotion? b. What is the expected level of profit? c. Suppose the surplus dealer will only buy back a maximum of four sets at the end of the promotion. Would this change your answer? If so, how?Explanation / Answer
a)Daily Demand Tv::::::::::::::::::::::::Probability::::::::::Profit(expected)
1)50*$250=$12,500::::::::::::::::::::::::::::::0.15::::::::::$1,875
2)50*$250=$12,500::::::::::::::::::::::::::::::0.20::::::::::$2,500
3)50*$250=$12,500::::::::::::::::::::::::::::::0.30::::::::::$3,750
4)50*$250=$12,500::::::::::::::::::::::::::::::0.20::::::::::$2,500
5)50*$250=$12,500::::::::::::::::::::::::::::::0.10::::::::::$1250
650*$250=$12,500:::::::::::::::::::::::::::::::0.05::::::::::$625
Profit = TV selling price - Cost Price
=$575 - $325
=$250 per Tv
a)During the third day Tv sold probability is in high level 0.30
it means =50 TV * 0.30= 15 Television need to order maximize the expected profit.
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b)Maximum Expected profit =15 Television * $250 profit per TV=$3,750
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c)AVerage, 0.15+ 0.20+0.30+0.20+0.10+0.005/6
=1/6
=0.17 probability
50tv * 0.17=8.5 or 9
9 Television *250=$2,250
9 television +4 (extra) Tv=13 Television can ordered
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