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This is the profit if 5,000 pretzels are available to sell and demand is 5,000 pretzels. It is impossible to sell more products that are supplied, so the conditional profit of having 4,000 pretzels and a demand of 5,000 is the same as having 4,000 pretzels available and a demand of 4,000.
It would not be possible to have a loss if they purchase 4,000 pretzels and have a demand for 5,000 pretzels. The cost of each pretzel is less than the revenue received from selling it, they have no fixed costs to cover, and they will not have any unsold pretzels.
It is impossible to sell more products that are supplied, so the conditional profit of having 4,000 pretzels and a demand of 5,000 is the same as having 4,000 pretzels available and a demand of 4,000. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
The meaning of the word "conditional" in "conditional profit" is similar to the meaning of the word "conditional" in "conditional probability." The conditional probability of two events is the probability that the second event will occur when it is known that the first event has already occurred. Conditional profit is conditional because a certain amount of profit (or loss) is associated with each possible course of action, such as purchasing a certain amount of inventory and selling a certain amount of inventory. In this problem, the first event is the purchase of 4,000 pretzels. So given that we know that 4,000 pretzels have been purchased, what is the profit from that course of action if demand is 5,000 pretzels? In other words, in this problem, there are actually two conditions that are known: (1) 4,000 pretzels are supplied, and (2) demand is 5,000 pretzels. Since the amount supplied is given and the amount demanded is given, the frequency distribution of the demand for pretzels is irrelevant. It is impossible to sell more products than are supplied. Furthermore, conditional profit does not take into consideration any opportunity loss of lost sales because of not being able to fulfill all that is demanded. So the conditional profit of having 4,000 pretzels and a demand of 5,000 is the same as having 4,000 pretzels available and having a demand of 4,000. If 4,000 are sold at a price of $1.00 each and the cost is $.30 each, the profit is ($1 ? $.30) × 4,000 = $2,800.