# Expected Value Criteria

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.

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#### 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.