[3 points] A manufacturer of designer jeans is desiring to know the potential pr
ID: 2921158 • Letter: #
Question
[3 points] A manufacturer of designer jeans is desiring to know the potential profit associated to building a small factory in a particular location. The proft per pair of jeans manufactured is estimated as $15. A small factory will have an annual cost of $200,000 and provide a production capacity of 50,000 jeans per year. Four levels of product demand are possible. They are 10,000 9. (probability of 0.1), 20,000 (probability of 0.4), 50,000 (probability of 0.2), and 100,000 (probability of 0.3) pairs of jeans per year. Compute the expected profit (in thousands of dollars) for building the small factory 20D, 006 et 4 levels of procnctionExplanation / Answer
profit when demand is 10000 X1=total margin for jeans-total cost =15*10000-200000= -50000
profit when demand is 20000 X2=total margin for jeans-total cost =15*20000-200000= 100000
profit when demand is 50000 X3=total margin for jeans-total cost =15*50000-200000= 550000
profit when demand is 100000 X4=total margin for jeans-total cost =15*50000-200000= 550000
therefore expected profit E(X) =E(X1)+E(X2)+E(X3)+E(X4) =0.1*(-50000)+0.4*100000+0.2*550000+0.3*550000
=$310000
please revert for any clarification required.