The Lakeshore Restaurant plans to order pies for the 4th of July. It will cost $3.5 to buy a pie, and they will sell for $10. Any unsold pie can be sold to a local charity for $2.
The following table, using data from the last few holidays, gives potential demand and possible probabilities for them.
|
Demand, D
|
250
|
300
|
350
|
400
|
450
|
500
|
|
Probability, f(D)
|
0.25
|
0.20
|
0.20
|
0.15
|
0.10
|
0.10
|
a) What value, if any, would you use for the cost of unsatisfied demand?
b) If the restaurant buys 350 pies, what is its expected profit?
c) How many pies would you recommend they buy?