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    Marginal analysis - Profit Maximization

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    Ayang imchem is the manager of casto cheese, which produces cheese spreads and other cheese related products. E-Z spread cheese is a product that has always been popular. The probability of sales, cases, is as follows:
    Demand (cases) Probability
    10 0.2
    11 0.3
    12 0.2
    13 0.2
    14 0.1

    A case of E-Z spread cheese sells for $ 100 and has a cost of $ 75. Any cheese that is not sold by the end of the week is sold to a local food processor for $ 50. Teresa never sells cheese that is more than a week old. Use marginal analysis to determine how many cases of E-Z spread cheese to produce each week to maximize average profit.

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    Solution Preview

    Marginal profit/case (MP) = 100 - 75 = $25
    Marginal loss/case (ML) = 75 - 50 = $25

    Probability (no profit no ...

    Solution Summary

    Marginal analysis to find suitable option for profit maximization.