Maximizing the expected daily profit

Reference no: EM1391578

A merchant stocks a certain perishable item. She knows that on any given day she will have a demand for either two, three, or four of these items with probabilities 0.1, 0.4 and 0.5 respectively. She buys the item for $1.00 each and sells them for $1.20 each. If any are left at the end of the day, they represent a total loss. How many items should the merchant stock in order to maximize her expected daily profit?

Reference no: EM1391578

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