Consider a food truck selling only grilled chicken sandwich. They order chicken breast once every two...

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?

Expert Solution

Each sandwich consumes half a pound of chicken. Therefore, 2 sandwiches are equivalent to 1 pound of chicken.

Selling price per pound of chicken sandwich = 2 sandwiches * $ 8 per sandwich = $ 16

Similarly, Demand for # of sandwiches is divided by 2 to get the requirement for pounds of chicken

Marginal analysis is following

Formulas:

B10 =MIN($A10,B$7)*$C$1-$A10*$C$2+MAX(0,$A10-B$7)*$C$3 copy to B10:F14

G10 =SUMPRODUCT(B10:F10,$B$8:$F$8) copy to G10:G14

FT1. In the marginal analysis, we see that maximum expected profit pertains to order quantity equal to 60 lbs of chicke. Therefore, optimal order quantity = 60 lbs of chicken

FT2. Expected total profit for a two-day period =$ 450

keosha answered 10 months ago

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Consider a food truck selling only grilled chicken sandwich. They order chicken breast once every two...

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