A hardware store orders snow blowers during the summer for delivery in the fall

Subject:Operations ManagementPrice:3.87 Bought7

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A hardware store orders snow blowers during the summer for delivery in the fall. Each snow blower costs the store $400 and if sold prior to or during the winter sells for a full price of $550. The store’s manager doesn’t want to carry any unsold snow blowers in inventory from one year to the next, so he reduces the price to $350 in the spring in order to get rid of any leftovers. He will be able to sell all of these at this price. Based on past experience, the store’s manager expects that the demand for snow blowers at full price will be between 6 and 8. The store manager estimates the probabilities of selling different numbers of snow blowers at full price to be the following: probability of 6 is 0.40, the probability of 7 is 0.35 and the probability of 8 is 0.25.

a) Draw the decision tree that the hardware store manager can use to analyze this problem.

b) Using an expected value approach, how many snow blowers should the hardware store manager order to maximize its profit?

c) Suppose the hardware store manager wants an expected profit of $1200.00 if he buys 8 snow blowers. Assuming everything else remains the same, what should the full price for the snow blowers be for the expected profit to be $1200.00? The full price is the price prior to or during the winter season. Assume that the probabilities, etc. do not change with this price change.