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QNT561Case1.xlsx

Case 1

		Medium-Scale		Large-Scale
		Expansion Profits		Expansion Profits
		Annual Profit ($1000s)	P(x)	Annual Profit ($1000s)	P(x)
Demand	Low	50	20%	0	20%
	Medium	150	50%	100	50%
	High	200	30%	300	30%
Expected Profit ($1000s)		145		140
Risk Analysis for Medium-Scale Expansion
Demand	Annual Profit (x) $1000s	Probability P(x)	(x - µ)	(x - µ)2	(x - µ)2 * P(x)
Low	50	20%	-95	9025	1805
Medium	150	50%	5	25	12.5
High	200	30%	55	3025	907.5
				σ2 =	2725
				σ =	52.20
Risk Analysis for Large-Scale Expansion
Demand	Annual Profit (x) $1000s	Probability P(x)	(x - µ)	(x - µ)2	(x - µ)2 * P(x)
Low	0	20%	-140	19600	3920
Medium	100	50%	-40	1600	800
High	300	30%	160	25600	7680
				σ2 =	12400
				σ =	111.36

d	Average Daily Demand			200	Units	28.57
L	One Week			7	Days
σ	Standard Deviation			30		4.29
Z	Z-table			1.56
	Maximum Probability			6%
			√	7		2.65
		Solution				217.69
	Kelly's Will Place will place an order when the inventory level reaches 218 units.
		Would maintain in stock				17.68