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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.

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    https://brainmass.com/business/business-management/expected-value-criteria-447403

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    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

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