A store owner stocks an out-of-town newspaper that is sometimes requested by a small number of customers. Each copy of this newspaper costs her 70 cents, and she sells them for 90 cents each. Any copies left over at the end of the day have no value and are destroyed. Any requests for copies that cannot be met because stocks have been exhausted are considered by the store owner as a loss of 5 cents in
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Statistics for Business and Economics
- An author is trying to choose between two publishing companies that are competing for the marketing rights to her new novel. Company A has offered the author $10,000 plus $2 per book sold. Company B has offered the author $2,000 plus $4 per book sold. The author believes that four levels of demand for the book are possible are: 1,000, 2,000, 3000 and 5000 books are sold. If the probabilities of each level of demand are as follows: Demand Probability 1000 0.31 2000 0.32 3000 0.25 5000 0.12 Construct the payoff table for each level of demand for company X and company Y. What are the expected monetary value (EMV) and expected opportunity loss (EOL)? Hence determine the best decision that this author should do.arrow_forwardJoseph Biggs owns his own ice cream truck and lives 30 miles from a Florida beach resort. The sale of his products is highly dependent on his location and on the weather. At the resort, his profit will be $120 per day in fair weather, $10 per day in bad weather. At home, his profit will be $80 in fair weather and $50 in bad weather. Assume that on any particular day, the weather service suggests a 30% chance of foul weather. a) The correct decision tree for Joseph is shown in Figure 3 b) To maximize the return, for selling ice cream, Joseph's decision should be to use the Expected monetary value for Joseph = (enter your answer as a whole number). FIGURE 3 87 resort home 87 71 Fair(0.70) Foul(0.30) Fair(0.70) Foul(0.30) 120 10 80 50arrow_forwardThe owner of a firm must hire a manager to launch a new product. The new product can be successful and generate a revenue of 5000 or fail and generate a revenue of 1000. The probability of succ success is 0.7 (and hence the probability of failure is 0.3). If the manager exerts low effort (e=e,) then the probability of success is 0.2 (and hence the probability of failure is 0.8). The manager's utility effort chosen by the manager, with D(e) = 10 and D(e)-o. The manager's reservation utility is -40 The wage paid by the owner to the manager is the owner's only cost. The owner is risk neutral. If the owner could observe the manager's effort and would want the manager to exert high effort, what contract would he offer to the manager? What is the own Assume from now on that the manager's effort is unobservable. Suppose that the owner still wants to ensure that the manager accepts the proposed contract an this to happen. c) a)? a) b) It can be shown that the constraints in point b) must be…arrow_forward
- Managers of the restaurant, NicePizzeria@Nola, have to plan for the number of pizzas they want to make at the beginning of each day. Based on market research, the managers know the daily demand can only be one of the three levels: 30, 40 or 50 pizzas. Also, the probabilities of getting a daily demand of 30, 40, 50 pizzas are 0.3, 0.4, 0.3 respectively. The managers decide that their tentative daily supply of pizza should also be one of the three levels: 30, 40 or 50 pizzas. Each pizza costs $3 to make and the price is $8 per pizza. Note: The profit for each pizza sold is $5. For the ones supplied but not sold, the profit is -$3. Fill in the following profit table (hint: use two-way table ) and use the profit table to answer the questions. Three demand levels 30 40 50 30 Three supply 40 levels 50 1) What is the maximin supply level? 2) What is the maximum expected profit (across three supply levels)?arrow_forwardProblem 1. A new edition of a very popular textbook will be published a year from now. The publisher currently has 2000 copies on hand and is deciding whether to do another printing before the new edition comes out. The publisher estimates that demand for the book during the next year is governed by the probability distribution on the image . A production run incurs a fixed cost of $10,000 plus a variable cost of $15 per book printed. Books are sold for $130 per book. Any demand that cannot be met incurs a penalty cost of $20 per book, due to loss of goodwill. Up to 500 of any leftover books can be sold to Barnes & Noble for $35 per book. The publisher is interested in maximizing expected profit. The following print- run sizes are under consideration: 0 (no production run) to 16,000 in increments of 2000. What decision would you recommend? Use simulation with 1000 replications. For your optimal decision, the publisher can be 90% certain that the actual profit associated with…arrow_forwardIn a tight real estate market, the probability that a buyer's offer will be accepted is 0.50 if she bids more than 15 thousand above the asking price. The probability of acceptance drops to 0.20 if she bids below this amount. Overall, sixty percent of offers are more than 15 thousand above the asking price. The probability that a randomly selected offer will be accepted by the seller is closest or equal to: 0.15 0.38 0.20 0.32 O 0.18arrow_forward
- Eric has a job at an electronics store in a mall. Eric doesn't like to work hard, and it costs him $100 to do so. Eric's employer cannot observe whether Eric works hard or not. If Eric works hard, there is a 75% probability that electronics goods profits will equal $400 a day and a 25% probability that electronics goods profits will equal $100 a day. If Eric shirks, there is a 75% probability that electronics goods profits will equal S100 a day and a 25% probability that electronics goods profits will equal $400 a day. Suppose Eric is paid $200 if electronics goods profits are $400 a day and $50 if electronics goods profits are S100 a day. Eric will because the net gain of from shirking is than the net gain of from working hard. O shirk; $87.50; more; $62.50 O shirk; $125; more; $118 O work hard; S50; less; $62.50 O work hard; $100; less; $250arrow_forwardA software developer makes 175 phone calls to its current customers. There is an 8 percent chance of reaching a given customer (instead of a busy signal, no answer, or answering machine). The normal approximation of the probability of reaching at least 20 customers is Multiple Choice .022 .007 .063 .937arrow_forwardTwo types of light bulbs are manufactured by firm A and firm B. The life of bulb type A is normally distributed with mean 100 hours and variance 15. The life of bulb type B is normally distributed with mean 105 hours and variance 30. (i) What is the probability that a type A bulb will last more than 110 hours? (ii) If 20 bulbs each of type A and type B bulbs are turned on at the same time, what is the probability that type A bulbs will last longer than type B bulbs ?arrow_forward
- A bakery would like you to recommend how many loaves of its famous marble rye bread to bake at the beginning of the day. Each loaf costs the bakery $2.00 and can be sold for $7.00. Leftover loaves at the end of each day are donated to charity. Research has shown that the probabilities for demands of 25, 50, and 75 loaves are 30%, 20%, and 50%, respectively. Make a recommendation for the bakery to bake 25, 50, or 75 loaves each morning. Find the expected monetary value when baking 25 loaves. EMV=$(Type an integer or a decimal.) Find the expected monetary value when baking 50 loaves. EMV = $(Type an integer or a decimal.) Find the expected monetary value when baking 75 loaves. EMV = $ (Type an integer or a decimal.) Make a recommendation for the bakery to bake 25, 50, or 75 loaves each morning. The bakery should bake loaves of bread every morning. O 25 50 75 Earrow_forwardAt races, your horse, White Rum, has a probability of 1/20 of coming 1st, 1/10 of coming 2nd and a probability of 1⁄4 in coming 3rd. First place pays $5,000 to the winner, second place $4,000 and third place $1,350.Hence, is it worth entering the race if it costs $1050? Your company plans to invest in a particular project. There is a 40% chance you will lose $3,000, a 45% chance you will break even, and a 15% chance you will make $5,500. Based solely on this information, what should you do? On 1st Jan 2006, a business had inventory of $19,000. During the month, sales totalled $32,500 and purchases $24,000. On 31st Jan 2006 a fire destroyed some of the inventory. The undamaged goods in inventory were valued at $11,000. The business operates with a standard gross profit margin of 30%. Based on this information, what is the cost of the inventory destroyed in the fire?arrow_forward2.4 The opening 2018 World Cup odds against being the winning team specified by espn.com were 9/2 for Germany, 5/1 for Brazil, 11/2 for France, 20/1 for England, and 7/1 for Spain. Find the corresponding prior probabilities of winning for these five teams.arrow_forward
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning