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Expected Demand, Revenue, Cost, Profit

A video rental store has two video cameras available for customers to rent. Historically, demand for cameras has followed this distribution. The revenue per rental is $40. If a customer wants a camera and none is available, the store gives a $15 coupon for tape rental.
Demand Relative Frequency Revenue Cost
0 .35 0 0
1 .25 40 0
2 .20 80 0
3 .10 80 15
4 .05 80 30
a. What is the expected demand?
b. What is the expected revenue?
c. What is the expected cost?
d. What is the expected profit?

Solution Preview

(a) Expected demand = Sigma [demand * p(demand)]

= [0(0.35) + 1(0.25) + 2(0.20) + 3(0.10) + 4(0.05)]

= 1.15

(b) ...

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