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chimeric chimeric
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6 years ago
Orders for clothing from a particular manufacturer for this year's Christmas shopping season must be placed in February. The cost per unit for a particular dress is $20 while the anticipated selling price is $50. Demand is projected to be 50, 60, or 70 units. There is a 40 percent chance that demand will be 50 units, a 50 percent chance that demand will be 60 units, and a 10 percent chance that demand will be 70 units. The company believes that any leftover goods will have to be scrapped. How many units should be ordered in February?
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Quantitative Analysis for Management

Quantitative Analysis for Management


Edition: 12th
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6 years ago
Payoff Table:


EMV(50) = .4(1500) + .5(1500) + .1(1500) = 1500
EMV(60) = .4(1300) + .5(1800) + .1(1800) = 1600
EMV(70) = .4(1100) + .5(1600) + .1(2100) = 1450

Thus, 60 units should be ordered.
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