Find total expected return

Reference no: EM131005828

The number of missing items in a certain location, call it X, is a Poisson random variable with mean λ. When searching the location, each item will independently be found after an exponentially distributed time with rate μ. A reward of R is received for each item found, and a searching cost of C per unit of search time is incurred. Suppose that you search for a ?xed time t and then stop.

(a) Find your total expected return.

(b) Find the value of t that maximizes the total expected return.

(c) The policy of searching for a ?xed time is a static policy. Would a dynamic policy, which allows the decision as to whether to stop at each time t, depend on the number already found by t be bene?cial?

Reference no: EM131005828

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