d, Julia, owns a corner store in your neighborhood. She purchases fresh milk from a nearby farm and sells them in her store. Cost of the milk is $5 per case, and each case can be sold for $6 per case. Since the milk does not go through rigorous treatment, it should be sold within a week. Any milk that is not sold during the week can be sold back to the farm for $2 per case. Based on the historical, she identified the following probability distribution of the demand. Weekly Demand (cases) Probability 16 0.05 17 0.15 18 0.35 19 0.25 20 0.2
Your friend, Julia, owns a corner store in your neighborhood. She purchases fresh milk from a nearby farm and sells them in her store. Cost of the milk is $5 per case, and each case can be sold for $6 per case. Since the milk does not go through rigorous treatment, it should be sold within a week. Any milk that is not sold during the week can be sold back to the farm for $2 per case. Based on the historical, she identified the following probability distribution of the demand.
|
Weekly Demand (cases) |
Probability |
|
16 |
0.05 |
|
17 |
0.15 |
|
18 |
0.35 |
|
19 |
0.25 |
|
20 |
0.2 |
One of the reasons why people come to her store is the availability of fresh milk, and those customers typically make other purchases along with fresh milk. She believes there will be a loss of such sales if she is not able to have enough fresh milk in the store, and estimates this loss to be $2 per case.
Julia needs some help to determine how many cases of fresh milk she needs to order for the coming week. Construct a payoff table for this decision situation. Determine the number of cases of milk she should order based on the expected profit.
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