Question

Dan's Independent Book Store is trying to decide on how many copies of a book to purchase at the start of the upcoming selling season. The book retails at $28.00. The publisher sells the book to Dan at $20.00. Dan will dispose of all of the unsold copies of the book at 50% off the retail price, at the end of the season. Dan estimates that demand for this book during the season is Normal with a mean of 1000 and a standard deviation of 250. How many copies should Dan order so as to maximize expected profit?

a. 1340

b. 1045

c. 1020

d. 1000

e. 1125

f. 1375

Answer 1

The answer is b as he should order 1045 copies to maximize his profits.

Step-by-step explanation:

As

`CR=(C_(u) )/(C_(o)+C_(u) )`

So,

Given :

`C_(o) =20-14=6`

`C_(u) =28-20=8`

Thus

`CR=(8 )/(6+8 )`

`=57.14\%`

thus
`Q^(*) =Norm.inu(0.5714,1000,250)`

`=1045.0032`

≈
`1045`

Which is option b.