The local Office of Tourism sells souvenir calendars. The head of the office, Lucy, needs to order these calendars in advance of the main tourist season. Based on past seasons, Lucy has determined the probability of selling different quantities of the calendars for a particular tourist season.
|
Demand for Calendars
|
Probability of Demand
|
|
75,000
|
0.15
|
|
80,000
|
0.20
|
|
85,000
|
0.25
|
|
90,000
|
0.30
|
|
95,000
|
0.10
|
The Office of Tourism sells the calendars for $12.95 each. The calendars cost Lucy $5 each. The salvage value is estimated to be $0.50 per unsold calendar. Determine how many calendars Lucy should order to maximize expected profits.
(i) Solve using EXCEL. Use formulas to compute the profit for the various combinations of purchase quantity and demand.
(ii) Also, remember to provide a written response to the question posed in the problem.