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Specialty Toys, Inc., sells a variety of new and innovative children's toys. Management learned that the preholiday season is the best time to introduce a new toy, because many families use this time to look for new ideas for December holiday gifts. When Specialty discovers a new toy with good market potential, it chooses an October market entry date.

In order to get toys in its stores by October, Specialty places one-time orders with its manufacturers in June or July of each year. Demand for children's toys can be highly volatile. If a new toy catches on, a sense of shortage in the marketplace often increases the demand to high levels and large profits can be realized. However, new toys can also flop, leaving Specialty stuck with high levels of inventory that must be sold at reduced prices. The most important question the company faces is deciding how many units of a new toy should be purchased to meet anticipated sales demand. If too few are purchased, sales will be lost; if too many are purchased, profits will be reduced because of low prices realized in clearance sales.

For the coming season, Specialty plans to introduce a new product called Weather Teddy. This variation of a talking teddy bear is made by a company in Taiwan. When a child presses Teddy's hand, the bear begins to talk. A built-in barometer selects one of five responses that predict the weather conditions. The responses range from "It looks to be a very nice day! Have fun" to "I think it may rain today. Don't forget your umbrella." Tests with the product show that, even though it is not a perfect weather predictor, its predictions are surprisingly good. Several of Specialty's managers claimed Teddy gave predictions of the weather that were as good as many local television weather forecasters.

As with other products, Specialty faces the decision of how many Weather Teddy units to order for the coming holiday season. Members of the management team suggested order quantities of 15,000, 18,000, 24,000, or 28,000 units. The wide range of order quantities suggested indicates considerable disagreement concerning the market potential. The product management team asks you for an analysis of the stock-out probabilities for various order quantities, an estimate of the profit potential, and to help make an order quantity recommendation. Specialty expects to sell Weather Teddy for $24 based on a cost of $16 per unit. If inventory remains after the holiday season, Specialty will sell all surplus inventory for $5 per unit. After reviewing the sales history of similar products, Specialty's senior sales forecaster predicted an expected demand of 20,000 units with a .95 probability that demand would be between 10,000 units and 30,000 units.

Managerial Report

Prepare a managerial report that addresses the following issues and recommends an order quantity for the Weather Teddy product.

Use the sales forecaster's prediction to describe a normal probability distribution that can be used to approximate the demand distribution. Sketch the distribution and show its mean and standard deviation.

Background: The third and fourth steps in the monetary policy transmission mechanism connect: a aggregate demand to final GDP b. the federal funds rate to market interest rates C. the federal funds rate to the final GDP D. market interest rates to aggregate demand Question: The connection identified in the previous question will be weaker when: A. a higher marginal propensity to consume B. a lower marginal propensity to consume C. aggregate demand begin more sensitive to interest rates D. aggregate demand being less sensitive to interest ratesQuestion 1 Which of the following statements in reference to air pollution and health is false? Diesel exhaust is associated with increased incidence of respiratory diseases. allergies, heart attacks. diabetes. and lung cancer. The most industrialized countries have levels of air pollution that far surpass the levels experienced in developing countries. Air pollution can cause serious health problems and death even at concentrations within legally allowable limits established by the NAAGS. Air pollution has its greatest impact on children, the elderly. smokers, athletes. and those Suffering from respiratory disease. It is difficult to demonstrate a direct link between a specific level of a specific air pollutant and development of respiratory disease. Question 2 (0.3 points) The drop in housing values has a wealth effect that most directly affects which component of aggregate demand? Question 2 options: Government Purchases Investment Consumption Net Exports Question 3 (0.3 points) The drop in new housing construction most directly affects which component of aggregate demand? Question 3 options: Net Exports Government Purchases Consumption InvestmentQUESTION 5 True or False : A recessionary gap can be caused by consumers who spend more than the earn. True False QUESTION 6 An economic expansion accompanied by high inflation can most likely be attributed to a(n) . everything else remaining unchanged. Decrease in aggregate supply Increase in aggregate demand O Increase in aggregate supply Decrease in aggregate demand QUESTION 7 True or False: At a higher price level, we can expect real incomes to remain constant. O True O False