The Supermart Store is about to place an order for Valentine's Day candy. The candy can be bought for $1.40 per box, and it is sold for $2.90 per box up to Valentine's Day. After Valentine's Day, any remaining boxes are sold for $1.00 each. All surplus candy can be sold at this reduced price. Demand at the regular retail price is a random variable with the following discrete probability distribution:
|
Demand (Boxes)
|
Probability
|
|
8
|
.15
|
|
9
|
.15
|
|
10
|
.30
|
|
11
|
.30
|
|
12
|
.10
|
a. Determine the expected demand for boxes of candy at the regular retail price.
b. Determine the optimal number of boxes to stock using the critical fractile approach.
c. What is the expected profit for your order in part b?