Scenario 15.2 - The Hilltop
Gregory and his followers scavenge the countryside for anything of value and with minimal investment,make it ready to provide for any customer visiting their compound.Their average investment in a product is $3,and one popular product,body armor,is in high demand.Residents of The Kingdom and Alexandria in particular,are eager to procure The Hilltop's body armor for $65 and sell it to anyone left in the world at an average price of $650.The demand for the body armor is normally distributed,with a mean of 250 units and a standard deviation of 50.
-If Gregory and a single retailer - say Alexandria - act as a vertically integrated supply chain,what is their expected understock quantity if Alexandria orders optimally?

Question

Quizplus · Accepted Answer

The expected understock quantity is 0 because the demand is normally distributed with a mean of 250 units and a standard deviation of 50, and Alexandria orders optimally. This means that Alexandria will order 250 units of body armor, which is the mean of the demand. Since the demand is normally distributed, the probability of Alexandria ordering less than 250 units is 0.5, and the probability of Alexandria ordering more than 250 units is also 0.5. Therefore, the expected understock quantity is 0.

Scenario 15.2 - the Hilltop