Biology Forums - Study Force

Produce Company needs to know the pounds of apples to have on hand each day. Each pound of apples costs $0.50 and can be sold for $0.80. Unsold apples are worthless at the end of the day. The following demands were found after studying the last six month's sales:

   200 pounds of apples 30% of the time
   300 pounds of apples 40% of the time
   400 pounds of apples 30% of the time

Required:
Determine whether Produce Company should order 200, 300, or 400 pounds of apples.

Quantity
   Ordered       Demand Probability       Expected Value
   200   300   400
   200   $60   $60   $60   $60.00
   300   10   90   90   $6600
   400   (40)   40   120   $40.00

   p   .30   .40   .30

Demand example: 300 units ordered; but demand is 200 units:
   ($0.30 × 200) - ($0.50 × 100) = $10
Expected value example:
   Order 400: ($(40) × 0.30) + ($40 × 0.40) + ($120 × 0.30) = $40

Should order 300 pounds of apples to maximize profit.

I see. Hmm...

Thanks for confirming, will mark this solved.