Answered: Imagine that you run a business that…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Imagine that you run a business that manufactures a unique medical product. The potential demand for the product is very short lived and uncertain. Your production cycle is very long, which means you need to have the products ready in advance. If the demand for your product arises (only 30% chance), they will be sold well; if not, the products will remain unsold and you will need to liquidate them for $500 each. You predict that the demand will be normally distributed with mean= 15000 and standard deviation= 7000. The production cost of your product is, on average, $5500. You will sell your product for $12500. Suppose you make 18000 products, and you get lucky and demand will occur this year. What is your expected profit?

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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