I have reviewed my book, but this problem really does not make muchsense to me.

Question

I have reviewed my book, but this problem really does not make muchsense to me. Can anyone help me out? What is the best method tofigure this out?

First Furniture Inc., is evaluation a new promotional campaign thatcould increase sales. Possible outcomes and probabilities of theoutcomes are shown. Computer coefficient of variation.

Possibleoutcomes                           Additional sales inunits                     Probabilities
Ineffectivecampaign                                     20                                             .20
Normalresponse                                          30                                             .50
Extremelyeffective                                        70                                             .30

Explanation / Answer

Answer:

We know that,

Coefficient of variation =Standard deviation / Mean

Mean = Sales1 *Probability1 + Sales2 *Probability2 + Sales3 *Probability3

Mean = 20 * 0.2 + 30 * 0.5+ 70 * 0.3

Mean = 4 + 15 +21

Mean = 40 units ofsales on the average

Standard deviation = (Sales – Mean) 2 *Probability

Standard deviation = [(20 – 40) 2 * 0.2] + [(30 –40) 2 * 0.5] + [(70 – 40) 2 *0.3]

Standard deviation = [(–20) 2 * 0.2] + [(–10)2 * 0.5] + [(30) 2 * 0.3]

Standard deviation = [400 * 0.2] + [100 * 0.5] + [900 * 0.3]

Standard deviation = [80] + [50] + [270]

Standard deviation = [400]

Standard deviation =20 units of sales is in risk

Co-efficient of variation= Standard deviation / Mean

Co-efficient of variation= 20 units / 40 units

Co-efficient of variation= 0.5 or 50%

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