Answered: Motorama TV estimates the annual demand…

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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Question

Motorama TV estimates the annual demand for its TVs
is (and will be in the future) normally distributed, with a
mean of 6,000 and standard deviation of 2,000. Motorama

must determine how much production capacity it should
have. The cost of building enough production capacity to
make 1,000 sets per year is $1,000,000 (equivalent in present
value terms to a cost of $100,000 per year forever). Exclusive
of the cost of building capacity, each set sold contributes
$250 to profits. How much production capacity should
Motorama have?

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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