Question

A bicycle shop owner is deciding which products to stock. His distributor will give him a deal if he buys more of the same kind of bike. The payoff table shows monthly sales for a high-end bike (selling at $950) or a moderately priced bike (selling at $500). Based on past experience, the shop owner makes the following assumption about the demand for the high-end bike. Demand will be low, moderate, or high with probabilities 0.3, 0.5, and 0.2, respectively. He also assumes that if demand is low for the high-end bike, it will be higher for the moderately priced bike.
a) Compute the EV for each alternative product (decision).
b) Compute the SD for each decision.
c) Compute the CV and RRR for each decision.
d) Which bike would you stock and why?


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  • CreatedMay 15, 2015
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