PROBLEM 1: The WarmUp Company
Your firm, the WarmUp Company, sells only two products: winter hats and coffee mugs. (This is quite a limited portfolio of products!) In terms of revenue, you charge prices of $20 per hat and $10 per mug. However, you are uncertain how many hats and mugs you will sell this year. Let H denote the number of hats you will sell this year, and let M denote the number of mugs you will sell this year. Based on forecasts from your sales team, you believe that…
E(H) = 22,000, Var(H) = 9,000,000, E(M) = 8,000, Var(M) = 1,000,000
A. What is your expected total revenue for the year from these two products?
B. Assuming H and M are independent, what is the variance of your total revenue for
the year?
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