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17 April, 05:00

Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $25. Inventory is salvaged for $5. What is its maximum profit? $5000 $12,500 $7500 $8000

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  1. 17 April, 06:41
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    maximum profit = $7500

    so correct option is c $7500

    Explanation:

    given data

    mean = 500

    standard deviation = 300

    cost = $10

    price = $25

    Inventory salvaged = $5

    to find out

    What is its maximum profit

    solution

    we get here maximum profit that is express as

    maximum profit = mean * (price - cost) ... 1

    put here value in equation 1 we get maximum profit

    maximum profit = mean * (price - cost)

    maximum profit = 500 * ($25 - $10)

    maximum profit = 500 * $15

    maximum profit = $7500

    so correct option is c $7500
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