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A retailer is deciding how many of a certain product to stock. The historical probability distribution...

A retailer is deciding how many of a certain product to stock. The historical probability distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs $8 per unit and sells for $25 per unit. The largest profit in the entire payoff table for this scenario is

a. $8 profit

b. $75 profit

c. $17 profit

d, $51 profit

e. $24 profit

business   Operations-Management   
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Answer #1

Answer: Option D

Explanation: The maximum sales will correspond to the maximum profit.

Sales (Max) = 3 units

Cost price = $8

Total cost = 8 x 3 = $24

Selling price = $25

Total Revenue = 3 x 25 = $75

Profit = Total Revenue - Total cost

= 75 - 24

= $51

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