Question

Chris Ellis newsstand, just outside the Smithsonian subway station in Washington, DC, usually sells 120 copies of the Washington Post each day. Chris believes the sale of the Post is normally distributed, with a standard deviation of 15 papers. He pays 60 cents for each paper, which sells for $1.25. The Post gives him a 30-cent credit for each unsold paper. According to this given information optimal stocking out probability is:_______

Answer 1

31.58%

Step-by-step explanation:

We have the following information

Daily number = 120

Standard deviation = 15

Amount paid = 60 cents = 0.60dollars

What he gets for the unsold = 0.30 dollars

Undercoverage = Cu = 1.25-0.60 = 0.65

Over coverage = Co = 0.60 - 0.30 = 0.30

In stock probability = Cu/Cu + Co

= 0.65/0.65+0.30

= 0.65/0.95

= 0.6842

The optimal stocking out probability = 1- 0.6842

= 0.3158

= 31.58%