IM Retail deals in retail of all items of a popular cosmetic brand Beau. For a particular
Question:
IM Retail deals in retail of all items of a popular cosmetic brand Beau. For a particular item, the price of stocking, selling, and cost price varies with the season.
The cost price of the item in season is $12, while its selling price in season is $18. After the season, the bargain price is $9 and cost of stocking the item after season is $1. Gathering past data IM Retail has developed the following probability distribution for demand:
Demand (units) Probability 7 .20 8 .20 9 .25 10 .15 11 .20
a. Construct a payoff table for IM Retail decision problem of how many units to be stocked. What is the best decision from an expected value basis?
b. Find the expected value of perfect information.
c. What is the expected demand? What is the expected profit if the retailer stocks the expected demand?
Step by Step Answer: