BU283 Lecture Notes - Lecture 14: Standard Deviation, Probability Density Function, Fixed Cost
Document Summary
You probably know how many customers to expect in a day: you probably know other distributional characteristics: range, standard deviation, etc. How much will each customer spend: you probably have a distribution for this as well. How much you make depends on the markup on the items purchased: there is likely a distribution for this, too. You could start with using the expected values of each distribution: number of customers, times, amount purchased, times, margin percentage per item. This would give you a point estimate of the margin earned. But expected values do not always happen. From an article by sam savage in harvard business review, nov. 2002. Dramatic example that shows us why the median doesn"t work: the zigzag line is the drunken guy"s projection of the actual line. His projection is within the average however if he continues on the average he"ll live but if he walks on the zigzag he"ll most likely die.
