Question

A company can make kits at a cost of $ 20.00. Each “kit” for which there is a glove demand the week it is manufactured can be sold for $ 100.00. However, due to the short life of its components, each “kit” that cannot be sold during that week has to be discarded at a cost of $ 5.00

The weekly demand for that product is a random variable with the following pmf

Weekly demand (no. “Kits”)	0	50	100	150
Probability of demand	0.03	0.35	0.35	0.27

1) Calculate the expected value of the demand for “kits” during one week

2) Calculate the variance of demand for a week

3) The company could manufacture 50 “kits” per shift. If they decide to go into business, how many shifts must they work (1, 2, or 3) to maximize the expected profit?

Answer 1