How much oil should they order to maximize profit

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Reference no: EM132232405

The Snowy Peaks ski resort closes for the season at the end of February. In addition to supplying ski equipment, food, and many other things to its customers, it has to heat their hotel rooms. Since the number of customers in February is unknown, the amount of heating oil needed is unknown. They have to decide how much oil they should order. The Snowy Peaks marketing department feels that the amount of oil needed will be determined by a triangular distribution with a = 1000 gallons, c = 2000 gallons, and b = 4000 gallons.

The resort's oil supplier will charge them $3.00 per gallon in February. They estimate that each gallon that is consumed creates $6.00 in revenue. Since February is the last month of the ski season, any oil that is left at the end of the month must be discarded in an environmentally responsible manner. Consequently, any oil that remains on March 1 costs $2.00 to remove. In other words, it has a negative salvage value: -$2.00 per gallon.

To maximize their net profit, they order 2,064 gallons for February.

Assume the mean is 2000 gallons and standard deviation is 200 gallons.

If the amount of oil needed follows a normal disribution, how much oil should they order to maximize the profit?

If the amount of oil they need is distributed with a poisson distribtion, how much oil should they order to maximize profit?

Reference no: EM132232405

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