The Supermarket Store is about to place an order for Halloween candy. One best-selling brand of candy can be purchased for $ 2.50 per box before and up to Halloween. After Halloween, all the remaining candy can be marked down and sold for $ 1.00 per box.

Assume that the loss in goodwill “cost” stemming from customers whose demand is not satisfied is $ 0.35. Three potential sales prices and their associated empirical probability demand distributions are as follows.

Sales Price $ 7.50 - Empirical demand distribution.

Demand - D	Probability – f(D)
20	0.05
24	0.10
28	0.30
32	0.20
36	0.25
40	0.06
44	0.04

Sales Price $ 8.50 - Empirical demand distribution.

Demand - D	Probability – f(D)
20	0.10
24	0.15
28	0.35
32	0.15
36	0.15
40	0.06
44	0.04

Sales Price $ 9.50 - Empirical demand distribution.

Demand - D	Probability – f(D)
20	0.15
24	0.20
28	0.40
32	0.08
36	0.07
40	0.06
44	0.04

You are required to evaluate each sales price by completing the table below.

Sales Price	Optimal Stocking Quantity (Q*) in units	Expected Profit E[Π(Q*)] in $	Expected Shortage ES(Q*) in boxes
$ 7.50
$ 8.50
$ 9.50

Answer rating: 100% (QA)

To evaluate each sales price we need to calculate the optimal stocking quantity Q expected profit E Q and expected shortage ESQ for each price Lets start with the sales price of 750 Sales Price 750 To ... View the full answer