McBurger, Inc., wants to redesign its kitchens to improve productivity and quality. Three designs, called designs K1, K2, and K3, are under consideration. No matter which design used, daily production of sandwiches at a typical McBurger restaurant is for 500 sandwiches. A sandwich costs $1.30 to produce. Non-defective sandwiches sell, on the average, for $2.50 per sandwich. Defective sandwiches cannot be sold and are scrapped. The goal is to choose a design that maximizes the expected profit at a typical restaurant over a 300-day period. Designs K1, K2, and K3 cost $80,000, $100,000, and $140,000, respectively. Under design K1, there is a .80 chance that 90 out of each 100 sandwiches are non-defective and a .20 chance that 70 out of each 100 sandwiches are non-defective. Under design K2, there is a .85 chance that 90 out of each 100 sandwiches are non-defective and a .15 chance that 75 out of each 100 sandwiches are non-defective. Under design K3, there is a .90 chance that 95 out of each 100 sandwiches are non-defective and a .10 chance that 80 out of each 100 sandwiches are non-defective. What is the expected profit level of the design that achieves the maximum expected 300-day profit level?
McBurger, Inc., wants to redesign its kitchens to improve productivity and quality. Three designs, called designs K1, K2, and K3, are under consideration. No matter which design used, daily production of sandwiches at a typical McBurger restaurant is for 500 sandwiches. A sandwich costs $1.30 to produce. Non-defective sandwiches sell, on the average, for $2.50 per sandwich. Defective sandwiches cannot be sold and are scrapped. The goal is to choose a design that maximizes the expected profit at a typical restaurant over a 300-day period. Designs K1, K2, and K3 cost $80,000, $100,000, and $140,000, respectively. Under design K1, there is a .80 chance that 90 out of each 100 sandwiches are non-defective and a .20 chance that 70 out of each 100 sandwiches are non-defective. Under design K2, there is a .85 chance that 90 out of each 100 sandwiches are non-defective and a .15 chance that 75 out of each 100 sandwiches are non-defective. Under design K3, there is a .90 chance that 95 out of each 100 sandwiches are non-defective and a .10 chance that 80 out of each 100 sandwiches are non-defective. What is the expected profit level of the design that achieves the maximum expected 300-day profit level?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:McBurger, Inc., wants to redesign its kitchens to improve productivity and quality. Three
designs, called designs K1, K2, and K3, are under consideration. No matter which design is
used, daily production of sandwiches at a typical McBurger restaurant is for 500 sandwiches.
A sandwich costs $1.30 to produce. Non-defective sandwiches sell, on the average, for $2.50
per sandwich. Defective sandwiches cannot be sold and are scrapped. The goal is to choose a
design that maximizes the expected profit at a typical restaurant over a 300-day period.
Designs K1, K2, and K3 cost $80,000, $100,000, and $140,000, respectively. Under design
K1, there is a .80 chance that 90 out of each 100 sandwiches are non-defective and a .20
chance that 70 out of each 100 sandwiches are non-defective. Under design K2, there is a
.85 chance that 90 out of each 100 sandwiches are non-defective and a .15 chance that 75
out of each 100 sandwiches are non-defective. Under design K3, there is a .90 chance that
95 out of each 100 sandwiches are non-defective and a .10 chance that 80 out of each 100
sandwiches are non-defective. What is the expected profit level of the design that achieves
the maximum expected 300-day profit level?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education