A store owner stocks an out-of-town newspaper, which is sometimes requested by a small number of customers.
Question:
A store owner stocks an out-of-town newspaper, which is sometimes requested by a small number of customers. Each copy of this newspaper costs him 70 cents, and he sells them for 90 cents each. Any copies left over at the end of the day have no value and are de- stroyed. Any requests for copies that cannot be met because stocks have been exhausted are considered by the store owner as a loss of 5 cents in goodwill. The probability distri- bution of the number of requests for the newspaper in a day is shown in the accompanying table. If the store owner defines total daily profit as total revenue from newspaper sales, less total cost of newspapers ordered, less goodwill loss from unsatisfied demand, how many copies per day should he order to maximize expected profit? NUMBER OF REQUESTS PROBABILITY 0 12 3 4 .12 .16 18 32 .14 08
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