Toy Story: You are the owner of a toy stand in a mall and you need to decide how many units of a particular toy you will order to sell at your stand. You know that the demand will either be 20, 40, 60, 80 or 100 with equal likelihood. The unit cost of the toy is $4 and every unit you sell earns revenue of $10 per unit. Leftover units cannot be salvaged or re-sold and are worthless. You have only one opportunity to buy in anticipation of demand. Because the toys are shipped in batches, you must order in units of 20. a. For each combination of your choice (order quantity) and demand realization, find your profit. Construct a decision table with the profits you find. b. How many toys should you order to achieve highest expected profit? Hint: you only need to order one of the demand realizations. Hence, both the alternatives and the events are the same, namely the five possible demands. The outcome of any combination of your order quantity and the demand is your profit.
ScholarMatic: Explanation & Answer
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