An equipment rental store has 2 high definition cameras to rent. The revenue per
ID: 3042063 • Letter: A
Question
An equipment rental store has 2 high definition cameras to rent. The revenue per rental is $ 40. If no camera is available a $15 coupon is given for a tape rental. Demand for camera has followed this distribution Demand Relative frequency
0 0.35
1 0.30
2 0.20
3 0.10
4 0.05
What is expected demand
what is expected reveue
what is expected cost
what is expected profit
Explanation / Answer
Expected demand = px * Dx = 0 * 0.35 + 1 * 0.30 + 2 * 0.20 + 3 * 0.10 + 4 * 0.05 = 1.2
Expected Revenue = 40 * 1.2 = $ 48
Expected cost = ?
Here cost will occur only when there is more demand then 2 cameras
so expected cost = 15 * [(3 - 2) * 0.10 + (4 - 2) * 0.05] = $3
Expected profit = expected revnue - expected cost = 48- 3 = $ 45