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Inventory Decisions with Uncertain Factors

The Green Thumb roadside fruit and vegetable stand much order its cherries from a nearby orchard before they are picked. The following probability distribution for seasonal cherry demand applies:

Possible Demand Probability

D = 100 boxed .15
D = 150 .20
D = 200 .30
D = 250 .20
D = 300 .15

Green Thumb buys its cherries for $2 box and sells them for $3 a box. Unsold, overripe cherries are picked up for disposal by a hog farmer, who charges $.10 for each box. Green Thumb must determine how many boxed to order so that expected profit is maximized.

(a) Construct the payoff table
(b) Determine which quantity of cherries should be ordered.

Attachments

Solution Summary

Word and Excel files to show a payoff table and determine the quantity of cherries Green Thumb should order.

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