Service Management 7th Edition by James Fitzsimmons, Mona Fitzsimmons

Exercise 10

The Gilbert Air Conditioning Company is considering purchase of a special shipment of portable air conditioners from Japan. Each unit will cost Gilbert $80 and be sold for $125. Gilbert does not want to carry over surplus air conditioners to the following year. Thus, all surplus units will be sold to a wholesaler who has agreed to take them for $50 per unit. Given the probability distribution for air conditioners shown below, recommend an order quantity and the anticipated profit using expected value analysis: