Question

If a vendor has correctly used marginal analysis to select its stock levels for the day (as in the newsperson problem in the text), and if the profit resulting from the last unit being sold (Cu) is $120 and the loss resulting from that unit ifit is not sold (Co) is $360, which of the following is the probability of the last unit being sold?A. Greater than 0.90B. Greater than 0.85C.Greater than 0.75D. Greater than 0.25E. None of these

Answer 1

Answer:

C.Greater than 0.75

Explanation:

Given

Cu = $120

Co = $360

We know Probability P <= Cu/(Cu + Co)

P = 120/(120 + 360)

   = 120/480

   = 0.25

P is the probability of unit is will not sold and 1-p is the  probability of unit that will sold

1 - p = 1 - 0.25

       = 0.75

probability of the last unit being sold should be greater than 0.75