Question

Catalog sales companies mail seasonal catalogs to prior customers. The expected profit from each mailed catalog can be expressed as the product​ below, where p is the probability that the customer places an​ order, D is the dollar amount of the​ order, and S is the percentage profit earned on the total value of an order.

Expected Profit =pxDxS

Typically 16​% of customers who receive a catalog place orders that average $150​, and 28​% of that amount is profit. Complete parts​ (a) and​ (b) below.

​(a) What is the expected profit under these​ conditions?

​$6.72 per mailed catalog ​(Round to the nearest cent as​ needed.) (SOLVED)

​(b) The response rates and amounts are sample estimates. If it costs the company ​$6.42 to mail each​ catalog, how accurate does the estimate of p need to be in order to convince you that the expected profit from the next mailing is​ positive?

The estimate of p needs to have a margin of error of no more than _____%.

Answer 1