Decision Technology
Budget: $10 – $30 USD
The owner of a golf shop in Myrtle Beach, South Carolina, must decide how many sets of beginner golf clubs to order for the coming tourist season. Demand for golf clubs is random but follows a Poisson distribution with the average demand rates indicated in the following table for each month. The expected selling price of the clubs is also shown for each month.
May
June
July
August
September
October
Average Demand
60
90
70
50
30
40
Selling Price
$145
$140
$130
$110
$80
$60
In May, each set of clubs can be ordered at a cost of $75. This price is expected to drop 5% a month during the remainder of season. Each month, the owner of the shop also gives away a free set of clubs to anyone who makes a hole-in-one from a short practice tee next to the shop. The number of people making a hole-in-one on this tee each month follows a Poisson distribution with a mean of 3. Any sets of clubs left over at the end of October are sold for $45 per set.
a. How many sets of clubs should the shop owner order if he wants to maximize the expected profit on this product?
b. What are the best-case and worst-case outcomes the owner may face on this product if he implements your suggestion?
May
June
July
August
September
October
Average Demand
60
90
70
50
30
40
Selling Price
$145
$140
$130
$110
$80
$60
In May, each set of clubs can be ordered at a cost of $75. This price is expected to drop 5% a month during the remainder of season. Each month, the owner of the shop also gives away a free set of clubs to anyone who makes a hole-in-one from a short practice tee next to the shop. The number of people making a hole-in-one on this tee each month follows a Poisson distribution with a mean of 3. Any sets of clubs left over at the end of October are sold for $45 per set.
a. How many sets of clubs should the shop owner order if he wants to maximize the expected profit on this product?
b. What are the best-case and worst-case outcomes the owner may face on this product if he implements your suggestion?