A small bakery serves very popular fresh meat pies every day. The cost of making each pie is $2, and they are sold for $5 each. Unsold pies at the end of the day will be put for a quick sale for $1.00 each, and they are always sold out. The record of the past daily sales of the pies is presented below. Demand 100 150 200 250 300 350 Probability 10% 20% 25% 25% 15% 5% Answer the following question by showing the calculations: a. Construct a table of profits or losses for each possible quantity of the pies based on the demands as recorded above. How many pies should the bakery make every day to maximize the profit? b. Confirm your answer in sub-question a) using a full marginal analysis based on the costs of overestimating and underestimating demands.
A small bakery serves very popular fresh meat pies every day. The cost of making each pie is $2, and they are sold for $5 each. Unsold pies at the end of the day will be put for a quick sale for $1.00 each, and they are always sold out. The record of the past daily sales of the pies is presented below. Demand 100 150 200 250 300 350 Probability 10% 20% 25% 25% 15% 5% Answer the following question by showing the calculations: a. Construct a table of profits or losses for each possible quantity of the pies based on the demands as recorded above. How many pies should the bakery make every day to maximize the profit? b. Confirm your answer in sub-question a) using a full marginal analysis based on the costs of overestimating and underestimating demands.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A small bakery serves very popular fresh meat pies every day. The cost of making each pie is $2, and they are sold for $5 each. Unsold pies at the end of the day will be put for a quick sale for $1.00 each, and they are always sold out. The record of the past daily sales of the pies is presented below.
| Demand | 100 | 150 | 200 | 250 | 300 | 350 |
| Probability | 10% | 20% | 25% | 25% | 15% | 5% |
Answer the following question by showing the calculations:
a. Construct a table of
b. Confirm your answer in sub-question a) using a full marginal analysis based on the costs of overestimating and underestimating demands.
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