Each day the manager of a local bookstore must decide how many copies of the community newspaper to order for sale in her shop. She must pay the newspaper’s publisher $0.40 for each copy, and she sells the newspapers to local residents for $0.75 each. Newspapers that are unsold at the end of day are considered worthless. The probability distribution of the number of copies of the newspaper purchased daily at her shop is provided in the file P06_43.xlsx. Create a payoff table that lists the profit from each order quantity (multiples of 1000 only) and each demand, and use it to find the order quantity that maximizes expected profit. Why is this easier approach than a decision tree for this particular problem?

  • CreatedApril 01, 2015
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