Suppose the lowest and highest demand levels are updated to 70,000 and 145,000, respectively. What is the expected cost for Option 1 now?
Suppose the lowest and highest demand levels are updated to 70,000 and 145,000, respectively. What is the expected cost for Option 1 now?
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 6DRQ
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Question
Suppose the lowest and highest demand levels are updated to 70,000 and 145,000, respectively.
What is the expected cost for Option 1 now?
![Option 1
Option 2
Fixed cost (per Variable cost
year)
(per unit)
$650,000
$350,000
$1
$17](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5e82eb16-27d6-420f-9a8a-295cd6d4c66c%2Fe1ac0342-6d1f-4a4f-a247-7352fe78a649%2Fwt1i3ae_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Option 1
Option 2
Fixed cost (per Variable cost
year)
(per unit)
$650,000
$350,000
$1
$17
![Demand (units
per year)
50,000
95,000
140,000
Probability
40%
40%
20%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5e82eb16-27d6-420f-9a8a-295cd6d4c66c%2Fe1ac0342-6d1f-4a4f-a247-7352fe78a649%2Fpjycbm4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Demand (units
per year)
50,000
95,000
140,000
Probability
40%
40%
20%
Expert Solution
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Step 1 Introduction:
Given that the fixed cost for one year is 650000, the variable cost per unit is 1, For each demand unit per year, I have been given the probability data, here, I would determine the Expected cost for option 1, the detailed calculations are shown in the next section,
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