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Pete owns a small business renting out bicycles in Vancouver. He rents each bike for $5 a day. After a year, his rental bikes are

Pete owns a small business renting out bicycles in Vancouver. He rents each bike for $5 a day. After a year, his rental bikes are worn out and basically worthless. So each year Pete gives his old bikes to a local charity and replaces his entire fleet of bikes. Pete buys his bikes from a local manufacturer at the discounted price of $500 each. Pete has estimated the following probability distribution of the number of bikes he can expect to rent on any given day:

Number of bikes rented per day

10

11

12

13

14

Probability

0.10

0.25

0.40

0.20

0.05

After Pete rents out a bike, he has to clean and tune it before he can rent it out again. The average cost of this maintenance is $2 per bike. This includes the cost of materials and the opportunity cost of Petes time. Petes store is open five days a week year-round, except during a four-week period each January when he goes skiing. How many bikes should Pete buy each year to maximize his expected profit?

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