If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsperson problem), and the profit resulting from the last unit being sold (C_u) is $120 and the loss resulting from that unit if it is not sold (C_o) is $360, which of the following is the probability of the last unit being sold? A) Greater than 0.90 B) Greater than 0.85 C) Greater than 0.75 D) Greater than 0.25 E) None of these

Question

Quizplus · Accepted Answer

The optimal probability of selling the last unit is given by the critical ratio, which is C_u / (C_u + C_o). Here, it is 120 / (120 + 360) = 0.25. Therefore, the probability of the last unit being sold is greater than 0.25.

If a Vendor Has Correctly Used Marginal Analysis to Select