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Impact of Demand Probability on Optimal Ordering Quantity

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An operator assigns the following probabilities of demand for a magazine:
Demand Probability
10 copies 0.10
11 copies 0.15
12 copies 0.20
13 copies 0.25
14 copies 0.30

Each magazine sells for 50 cents and costs 30 cents.

1. If the operator can return any unsold copies for full credit, how many should be ordered?

2. If the operator cannot return unsold copies, how many copies should be ordered? What is the optimum expected profit in this scenario?

Memo: The backup to the solution is provided in an Excel file.

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Solution Summary

This solution analyzes the impact of demand probability on the optimal ordering quantity.

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