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Calculating optimal purchase amount.

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The probability distribution for the demand of a product has been estimated to be:

Demand Probability of Demand
0 0.05
1 0.15
2 0.30
3 0.35
4 0.10
5 0.05
6 0.00
1.00

Each unit is purchased for $10 and each unit sells for $50. Unsold units are worthless (no scrap value).

How many units should be purchased if no reordering is possible?

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This solution calculates the optimal purchase amount given the probability of demand and no reordering.

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