Question

Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $25. Inventory is salvaged for $5. What is its maximum profit

Answer 1

the maximum profit is $7,500

Step-by-step explanation:

The computation of the maximum profit is shown below:

= Mean demand × (price - cost )

= 500 × ($25 - $10)

= 500 × $15

= $7,500

hence, the maximum profit is $7,500

We simply applied the above formula so that the correct value could come