Question

You sell Christmas trees. Selling price $30. Purchase cost $20. Salvage value (sale to lumber yard) $10. With each sale, you give $5 credit to other products.

Demand for this Christmas is:

Demand	Probability
600	0.2
700	0.3
800	0.3
900	0.2

Suppose you order exactly 800 trees, how many trees would you sell? (The correct answer is 730 trees. Can someone show me how this was calculated?)

Answer 1

The expected value of the demand is given by

$\sum_{1}^{4}x_{_{i}}p_{i}$

where x1, x2, x3, x4 are the demands and p1, p2, p3, p4 are the corresponding probabilities.

Demand (x)	Probability (p)	px
600	0.2	120
700	0.3	210
800	0.3	240
900	0.2	180
	Sum =	750

Expected sales = 750.