Famous Albert prides himself on being the Cookie King of the West. Small, freshly baked cookies are the specialty of his shop. Famous Albert has asked for help to determine the number of cookies he should make each day. From an analysis of past demand, he estimates demand for cookies as DEMAND 2,100 dozen 2,300 2,500 2,700 2,900 3,100 3,300 PROBABILITY OF DEMAND 0.03 0.09 0.30 0.30 0.15 0.03 0.10 Each dozen sells for $0.68 and costs $0.50, which includes handling and transportation. Cookies that are not sold at the end of the day are reduced to $0.32 and sold the following day as day-old merchandise. a. Compute the expected profit or loss for each cookie making decision quantity. Note: Round your answer to the nearest whole number. Enter expected losses with a negative sign. Cookies Baked Probability of (Dozen) Demand 2,100 2,300 2,500 2,700 2,900 3,100 3,300 0.03 0.09 0.30 0.30 0.15 0.03 0.10 Expected Profit/Loss

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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S
Famous Albert prides himself on being the Cookie King of the West. Small, freshly baked cookies are the specialty of his shop. Famous
Albert has asked for help to determine the number of cookies he should make each day. From an analysis of past demand, he
estimates demand for cookies as
DEMAND
2,100 dozen
2,300
2,500
2,700
2,900
3,100
3,300
PROBABILITY OF
DEMAND
0.03
0.09
0.30
0.30
0.15
0.03
0.10
Each dozen sells for $0.68 and costs $0.50, which includes handling and transportation. Cookies that are not sold at the end of the
day are reduced to $0.32 and sold the following day as day-old merchandise.
a. Compute the expected profit or loss for each cookie making decision quantity.
Note: Round your answer to the nearest whole number. Enter expected losses with a negative sign.
Cookies Baked
(Dozen)
2,100
2,300
2,500
2,700
2,900
3,100
3,300
Probability
Demand
0.03
0.09
0.30
0.30
0.15
0.03
0.10
Optimal number of cookies
Expected
Profit/Loss
b. Based on your answers to part a., what is the optimal number of cookies to make?
dozen
Transcribed Image Text:S Famous Albert prides himself on being the Cookie King of the West. Small, freshly baked cookies are the specialty of his shop. Famous Albert has asked for help to determine the number of cookies he should make each day. From an analysis of past demand, he estimates demand for cookies as DEMAND 2,100 dozen 2,300 2,500 2,700 2,900 3,100 3,300 PROBABILITY OF DEMAND 0.03 0.09 0.30 0.30 0.15 0.03 0.10 Each dozen sells for $0.68 and costs $0.50, which includes handling and transportation. Cookies that are not sold at the end of the day are reduced to $0.32 and sold the following day as day-old merchandise. a. Compute the expected profit or loss for each cookie making decision quantity. Note: Round your answer to the nearest whole number. Enter expected losses with a negative sign. Cookies Baked (Dozen) 2,100 2,300 2,500 2,700 2,900 3,100 3,300 Probability Demand 0.03 0.09 0.30 0.30 0.15 0.03 0.10 Optimal number of cookies Expected Profit/Loss b. Based on your answers to part a., what is the optimal number of cookies to make? dozen
b. Based on your answers to part a., what is the optimal number of cookies to make?
Optimal number of cookies
dozen
c. By using marginal analysis, what is the optimal number of cookies to make?
Optimal number of cookies
dozen
Transcribed Image Text:b. Based on your answers to part a., what is the optimal number of cookies to make? Optimal number of cookies dozen c. By using marginal analysis, what is the optimal number of cookies to make? Optimal number of cookies dozen
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