A wholesaler must decide how many computers to purchase befo

A wholesaler must decide how many computers to purchase before they know how many they will be able to sell to local retailers. The wholesaler purchases the computers for $300 each and sells them to retailers for $350 each. If the wholesaler is not able to sell them to a retailer then the wholesaler can return them to the manufacturer (for a refund of the $300 cost), but the wholesaler must pay $40 per computer that it returns to the manufacturer (in shipping, handling, and insurance costs). The following probability distribution describes the number of computers the wholesaler may possibly sell to local retailers: there is a 23% chance that they will sell 900 computers, a 55% chance that they will sell 1100 computers; otherwise, they will sell 1500 computers. What is the expected number of computers the wholesaler will sell?

Solution

0.23 * 900 + 0.55 * 1100 + 0.22 * 1500

1142

expected number of computers will be 1142