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# Expected Value Criteria

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The Steak and Chop Butcher Shop purchases steak from a local meatpacking house. The meat is purchased on Monday at \$2.00 per pound, and the shop sells the steak for \$3.00 per pound. Any steak left over at the end of the week is sold to a local zoo for \$.50 per pound. The possible demands for steak and the probability of each are shown in the following table:

Demand (lb.) Probability
20 .10
21 .20
22 .30
23 .30
24 .10
1.00

The shop must decide how much steak to order in a week. Using Excel, construct a payoff table for this decision situation and determine the amount of steak that should be ordered, using expected value.

#### Solution Preview

Please refer attached file for better clarity of tables.

Cost=\$2 per lb
Selling price=\$3 per lb
Left over price=\$0.50 per lb

In case he order is 20 units,
Profit in case demand is 20 units=\$20.00
Profit in case demand is 21 units=\$20.00
Profit in case demand is 22 units=\$20.00
Profit in case demand is 23 units=\$20.00
Profit in case demand is 24 units=\$20.00

In case order is 21 units
Profit in case demand is 20 units=\$18.50
Profit in case demand is 21 units=\$21.00
Profit in case demand is 22 units=\$21.00
Profit in case demand is 23 units=\$21.00
Profit in case demand is 24 units=\$21.00

In case order is 22 units
Profit in case demand is 20 units=\$17.00
Profit in case demand is 21 ...

#### Solution Summary

Solution determines the optimal order quantity in the given case.

\$2.19