A GMC dealer believes that demand for 2014 car model will be

A GMC dealer believes that demand for 2014 car model will be normally distributed with a mean of 200 and standard deviation of 30. His cost of receiving an Envoy is €25,000, and he sells an Envoy for €40,000. Half of all the Envoys not sold at full price can be sold for €30,000. He is considering ordering, 240, 260, 280, or 300 models for that car?How many should he order?

Use Excel Sheets

Solution

We calculate cost as no. of cars x 25,000 and total price as 200 x 40,000 + No of unsold cars/2 x 30,000. Expected Gain = Total Price - Cost.

Since Expected gain is maximum for 240 cars, he should order 40 cars.