Decision making:Expected value
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Suppose that a bakery specializes in chocolate cakes. Assume the cakes retail at $18 per cake, but it takes $8 to prepare each cake. Cakes cannot be sold after one week, and they have a negligible salvage value. It is estimated that the weekly demand for cakes is: 15 cakes in 15% of the weeks, 16 cakes in 25% of the weeks, 17 cakes in 30% of the weeks, 18 cakes in 15% of the weeks, 19 cakes in 10% of the weeks, and 20 cakes in 5% of the weeks. How many cakes should the bakery prepare each week? What is the bakery's expected optimal weekly profit?
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This posting contains solution to following problem on expected value method.
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Suppose that a bakery specializes in chocolate cakes. Assume the cakes retail at $18 per cake, but it
takes $8 to prepare each cake. Cakes cannot be sold after one week, and they have a negligible ...
Purchase this Solution
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