Question

You are considering adding a new food product to your store for resale. You are certain that, in a month, the minimum demand for the product will be 6 units while the maximum demand will be 8 units. The estimated demand for this new product in any given month is 6 units (p=0.1), 7 units(p=0.4), and 8 units(p=0.5). If you choose to purchase 7 units for resale this month, what is the probability of selling all 7 units?

Answer 1

Using EMV analysis, the number of units of the new product should be purchased for resale = Purchase 7.

The maximum EMV of profit you can make is 270.

Step-by-step explanation:

We can use the following method to solve the given problem

Solution:

Using EMV analysis,

EMV (Purchase 6 for resale)= 6(40)(0.1) + 6(40)(0.4) + 6(40)(0.5)=240

EMV (Purchase 7 for resale) = [6(40)-60](0.1) +7(40)(0.4) + 7 (40)(0.5) = 270

EMV (Purchase 8 for resale) = [6(40)-2(60)] (0.1) + [7 (40) - 60] (0.4) + 8(40)(0.5)= 260

Largest EMV= 270; Choose to purchase 7 units for resale.

Step-by-step explanation:

Hopefully this helps :)