Becky's cake and confections bake and decorate cakes for weddings. The ingredients for each cake cost Becky a total of $45, and she can sell her cakes for $180 a piece. Once the ingredients go bad, however, she has to throw them out. The cake business is intensely competitve, and Becky gets most of her customers through perosnal referrals. She estimates that not having the ingredients to make a requested cake will cost her appromiximately $50 in sales and goodwill. Becky estimates demands for her cakes in the table below. Generate a payoff table, and compute the expected value for each alternative. For how many cakes should Becky purchase ingredients? Show how to use equations step by step so I would have a better understanding.
Becky's cake and confections bake and decorate cakes for weddings. The ingredients for each cake cost Becky a total of $45, and she can sell her cakes for $180 a piece. Once the ingredients go bad, however, she has to throw them out. The cake business is intensely competitve, and Becky gets most of her customers through perosnal referrals. She estimates that not having the ingredients to make a requested cake will cost her appromiximately $50 in sales and goodwill. Becky estimates demands for her cakes in the table below. Generate a payoff table, and compute the expected value for each alternative. For how many cakes should Becky purchase ingredients? Show how to use equations step by step so I would have a better understanding.
| Demand | Probability |
| 6 | 0.05 |
| 7 | 0.10 |
| 8 | 0.35 |
| 9 | 0.35 |
| 10 | 0.15 |
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