15 May HOW MANY COPIES SHOULD THE BOOKSTORE STOCK TO ACHIEVE HIGHEST EXPECTED VALUE?
The University of Dallas bookstore stocks textbooks in preparation for sales each semester. It normally relies on departmental forecasts and preregistration records to determine how many copies of a text are needed. Preregistration shows 90 operations management students enrolled, but bookstore manager Curtis Ketterman has second thoughts, based on his intuition and some historical evidence. Curtis believes that the distribution of sales may range from 70 to 90 units, according to the following probability model:
Demand
70
75
80
85
90
Probability
.15
.30
30
.20
.05
This textbook costs the bookstore $82 and sells for $112. Any unsold copies can be returned to the publisher, less a restocking fee and shipping, for a net refund of $36.
a) Construct the table of conditional profits.
b) How many copies should the bookstore stock to achieve highest expected value?
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