A retailer is deciding how many units of a certain product to stock. The historical probability distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs $11 per unit and sells for $25 per unit. What is the conditional value for the decision alternative "Stock 3" and state of nature "Sell 1"?
A) 1.4 units
B) $1 profit
C) $25 profit
D) $-8 profit
E) $23.80 profit

Question

Quizplus · Accepted Answer

The conditional value for the decision alternative "Stock 3" and state of nature "Sell 1" involves calculating the profit when only 1 unit is sold out of the 3 stocked. The cost of stocking 3 units is 3 * $11 = $33. Selling 1 unit at $25 results in a revenue of $25. The profit is revenue minus cost, which is $25 - $33 = $-8.

A Retailer Is Deciding How Many Units of a Certain