What should be probability of stocking out for retailer

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Reference no: EM133395396

Assignment:

A retailer of a seasonal product is determining the order quantity for the coming selling season. The retailer buys each unit at $10 and sells it at a price of $20. At the end of the selling season, the leftover inventory can be sold at a discount price of $5 per unit. Demand follows a normal distribution with mean μ and standard deviation σ.

A stock-out takes place when the inventory is not enough to fill the demand. To maximize the expected profit, what should be the probability of stocking out for the retailer?

Reference no: EM133395396

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