- At A Particular Shop The Price Of Christmas Trees Is 5 00 And The Unit Cost Is 2 00 Demand Is Approx Imately Expon 1 (313.05 KiB) Viewed 99 times
At a particular shop the price of Christmas trees is $5.00 and the unit cost is $2.00. Demand is (approx- imately) exponentially distributed. It can be represented by = -0, (P1) F(x) = 1 - exp(-), if x > 0 if x < 0 m being the expected number of trees. The best estimate available for the expected number of trees to be demanded is E(D) = m = 100 > But there is a possibility that the expectation may be 10% higher, that is , 110. Determine how much profit will be lost, on the average, if the inventory stocked is based on the estimated mean demand of 100, if, in fact, mean demand turns out to be 110. the magnitude of the answer would indicate how much it might be worth spending to improve the quality of the demand estimation in the use.