Consider a food truck selling only grilled chicken sandwich. They order chicken breast once every two days, which means this order is intended to satisfy next two days’ demand. Demand for a two?day period (# of sandwiches) is estimated by experience in the following table.
Demand (# of sandwiches) 40, 80, 100, 120, 160
Probability .20, .20, .20, .30, .10
Each sandwich consumes half a pound of chicken breast. The procurement cost for each pound of chicken breast is $5. Revenue from each sandwich is $8. All unused chicken breast can be sold to a local farm at the price of $1 per pound. Ignore all the other cost for making a sandwich in this question. Hint: Before doing the marginal analysis, consider converting all units to either # of sandwiches or # of pounds of chicken breast.
FT1. How many pounds of chicken breast should you order to maximize profit?
FT2. What’s the expected total profit for a two?day period?