Microeconomic Optimization of a Retail Outlet: Combinatorial and Probability Theory Methods

Abstract

In this article we develop a completely new method of microeconomic optimization of a retail outlet. It shows how many substitute goods of each kind a firm should purchase within a trading period in order to maximize its profit given the purchase prices, trade margins and the preference structure of the customer base (i.e. a share of potential customers who prefer good A to good B, a share of customers who prefer good B to good A and an indifferent, "neutral" share, respectively). The element of uncertainty emerges due to the fact that the order in which the customers come to the outlet is not defined in advance. The method uses combinatorics and probability theory. The practical application of the method can be, particularly, airline meal optimization.