SOLUTION: Dear tutors I would be very grateful for you help to this question : A small drugstore orders copies of a certain magazine for its magazine rack each week. Let X equal the dem

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Question 347515: Dear tutors I would be very grateful for you help to this question :
A small drugstore orders copies of a certain magazine for its magazine rack each week. Let X equal the demand for the magazine, that is, the number of customers who desire to buy the magazine in a week. Assume the pmf of X is as follows:
X: 1 2 3 4 5 6
f(x): 1/15 2/15 3/15 4/15 3/15 2/15

Suppose the store owner actually pays $1.00 for each copy of the magazine and charges customers $2.00. If the magazines have no salvage value, is it better to order 3 or 4 copies of the magazine? Hint: Consider the expected profit to the drugstore

Answer by solver91311(24713) About Me  (Show Source):
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The probability of selling at least 3 is 1 minus the probability of selling exactly 1 plus the probability of selling exactly 2. (There is actually a fallacy in your probability function since you don't have a finite probability > 0 that the store will sell 0 magazines). The probability of selling at least 4 is 1 - (P(1) + P(2) + P(3)), so:





Cost of 3 magazines =

Expected return on 3 magazines =

Profit on 3 =

Cost of 4 magazines =

Expected return on 3 magazines =

Profit on 4 =


John

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