Answer to Question #148163 in Management for juwita

Question

A retailer is deciding how many units 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 $11 per unit and sells for $25 per unit. What is the conditional value for the decision alternative "Stock 3" and state of nature "Sell 1"?

Answer 1

The stock number 3 state of the nature in regard to sell 1 shows that the retailer in question has about 3 parts of the stock which he disposed one of the units

The profit will be computed as revenue less the cost incurred

Revenue will constitute the units that has been disposed or sold multiplied by the price that is charged per unit.

This means it will be 1X25=25 and the cost will be computed as the number of units bought multiplied by cost which gives 3X11=33

Then revenue will be 25-33 which gives -8.The profit is $-8