Seas Beginning sells clothing by mail order. An important qu…

Seas Beginning sells clothing by mail order. An important qu…

Seas Beginning sells clothing by mail order. An important question is when to strike a customer from the company’s mailing list. At present, the company strikes a customer from its mailing list if a customer fails to order from six consecutive catalogs. The company wants to know whether striking a customer from its list after a customer fails to order from four consecutive catalogs results in a higher profit per customer. The following data are available:
■ If a customer placed an order the last time she received a catalog, then there is a 20% chance she will order from the next catalog.
■ If a customer last placed an order one catalog ago, there is a 16% chance she will order from the next catalog she receives.
■ If a customer last placed an order two catalogs ago, there is a 12% chance she will order from the next catalog she receives.
■ If a customer last placed an order three catalogs ago, there is an 8% chance she will order from the next catalog she receives.
■ If a customer last placed an order four catalogs ago, there is a 4% chance she will order from the next catalog she receives.
■ If a customer last placed an order five catalogs ago, there is a 2% chance she will order from the next catalog she receives.
It costs $2 to send a catalog, and the average profit per order is $30. Assume a customer has just placed an order. To maximize expected profit per customer, would Seas Beginning make more money canceling such a customer after six nonorders or four nonorders?
 

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