In: Statistics and Probability
The MeatsRUs Butcher Shop in downtown Philadelphia buys lamb chops from a local meatpacking house. The meat is purchased on Monday at $3.50 per pound, and the shop sells lamb chops for $7.00 per pound. Any lamb left over at the end of the week is sold to a local zoo for $1.00 per pound. The possible demands for lamb chops and the probability of each are shown in the following table:
Demand (lbs) |
Probability |
20 |
.20 |
22 |
.35 |
24 |
.25 |
26 |
.20 |
The shop must decide how many pounds of lamb chops to buy every week from the meatpacker.
a. Construct a payoff table
b. Calculate the Expected Value for each alternative (order size)
c. Make a recommendation based on your EV results