Question

If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsperson problem), and the profit resulting from the last unit being sold (Cu) is $0.90 and the loss resulting from that unit if it is not sold (Co) is $0.50, which of the following is the probability of the last unit being sold?

(A) Greater than 0.357
(B) Greater than 0.400
(C) Greater than 0.556
(D) Greater than 0.678
(E) None of the above

Answer 1

Option (A) is correct.

Step-by-step explanation:

Given that,

Profit resulting from the last unit being sold (Cu) = $0.90

Loss resulting from that unit if it is not sold (Co) is $0.50

Probability of last unit remaining unsold P(D < Q):

= Cu ÷ (Cu+Co)

= 0.9 ÷ (0.9 + 0.5)

= 0.6429

Probability of last unit bring sold P(D > Q):

= 1 - P(D < Q)

= 1 - 0.6429

= 0.3571