Answer to Question #62516 in Financial Math for LEE JIA WEI

Question

Suppose that a shop has N boxes of chocolates, which will expire in a week’s time. The chocolates are priced at $4 per box. The shop owner is wondering if he should offer a 25% discount and price these chocolates at $3 instead. The probability of selling D boxes of chocolates in a week depends on the price as follows: $4:
P(D=1) = 0.5 P(D=2) = 0.4 P(D=3) = 0.1 $3: P(D=1) = 0.25 P(D=2) = 0.25 P(D=3) = 0.5
Determine the values of N where the shop owner should price the chocolates at $4 and $3, respectively.