Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
MARGINAL ANALYSIS
It is difficult to develop the conditional profit table when there are a large number of scenarios and possible actions. The marginal analysis approach sidesteps an unmanageable conditional profit table. We will illustrate the procedure and its advantages through the following example.
Example
The fresh from the fields, vegetable and fruit wholesalers buys, produce and then sells to retailers. Currently, green peas are available. The wholesaler pays Rs.200 per box of peas. A box sold on the same day fetches Rs.300, otherwise it has a salvage value of Rs.50. Historical data has established the following demand for green peas.
Number of boxes
21
22
23
24
25
26
27
28
Probability
0.07
0.08
0.10
0.11
0.29
0.20
0.09
0.06
The wholesaler has decided to stock the optimal number of boxes based on the expected profit criterion.
Let us solve the problem using the conditional profit table. Note that the profit generated by the sale of one box is Rs.100 and the loss incurred on an unsold box is Rs.150.00.
Conditional Profit Table
Stocking level
Daily Demand
Expected profit
21(0.07)
22(0.08)
23(0.10)
24(0.11)
25(0.29)
26(0.20)
27(0.09)
28(0.06)
2100
1950
1800
1650
1500
1350
1200
1050
2200
2050
1900
1750
1600
1450
1300
2300
2150
2000
1850
1700
1550
2400
2250
2500
2350
2600
2450
2700
2550
2800
2100.00
2182.50
2245.00
2282.50
2292.50
2230.00
2117.50
1982.50
From the table, we see that the optimal stocking level is 25 (which generates the maximum expected profit of Rs.2,292.50).
As it can be seen, this approach is tedious and the conditional profit table is bound to become unmanageable.
Researchers found that it is extremely difficult to forecast the future exchange rates more precisely than the forward exchange rate or the current spot exchange rate. How would yo
applicability of operating cycle in poultry
Settlement of the Index Options Contract In the index options contract, the premium to be paid or to be received is calculated for each CM after netting the positions at the en
Crown Co. is expecting to receive 100,000 British pounds in one year. Crown expects the spot rate of British pound to be $1.49 in a year, so it decides to avoid exchange rate risk
How does continuous compounding benefit an investor? The effect of enhancing the number of compounding periods per year is to increase the future value of the investment. The
Pension Fund Management: A Global Perspective Pension funds are known worldwide more for their social security element. They have assumed more importance from the day the priva
Explain about the equity claims in the financial security. Equity classifies claims to shares into the net income and assets of a firm, and they do not contain a maturity date.
Q. What is Evaluation of Credit Policy? Evaluation of Credit Policy: - A credit policy is prepared to maintain the investment in receivables at optimum level. Receivable Turnov
What are agency problems? and between what two stakeholders do agency problem typically occur?
Account balance - Inherent risk At account balance / class of transaction level Balances susceptible to misstatement. History of errors. Complexity of transac
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd