Sally’s Silk Screening produces specialty T-shirts that are primarily sold at special events. She is trying to decide how many to produce for an upcoming event. During the event, Sally can sell T-shirts for $20 apiece. However, when the event ends, any unsold T-shirts are sold for $4 apiece. It costs Sally $8 to make a specialty T-shirt. Sally’s estimate of demand is the following: Demand Probability 300 400 500 600 700 800 .05 .10 .40 .30 .10 .05 a. What is the service rate (or optimal fractile)? b. How many T-shirts should she produce for the upcoming event?
Answers
ANHANITA BHOOSHAN HERE SEE BALVEER RETURNS MON TO FRI ON SONY SAB 7PM
Answer:
Sally’s Silk Screening produces specialty T-shirts that are primarily sold at special events. She is trying to decide how many to produce for an upcoming event. During the event, Sally can sell T-shirts for $20 apiece. However, when the event ends, any unsold T-shirts are sold for $4 apiece. It costs Sally $8 to make a specialty T-shirt. Sally’s estimate of demand is the following:
Explanation:
The cost of underestimating demand is considered as a loss of profit. As per the stated question, selling price per T-shirt is $20, and the cost per T-shirt is $8.
Hence, the cost of underestimating the demand, .
The cost of overestimating the demand is considered as a loss arising due to selling the particular unit at salvage value. The salvage value is $4 per piece.
Hence, the cost of overestimating the demand, .