Show your work with Excel and Solver: Pizza King (PK) and Noble Greek (NG) are competitive...

Show your work with Excel and Solver:

Pizza King (PK) and Noble Greek (NG) are competitive pizza chains. PK believes there is a 30% chance that NG will charge $8 per pizza, a 50% that NG will charge $10 per pizza, and a 20% chance that NG will charge $12 per pizza. If PK charges price p1 and NG charges price p2, PK will sell 100 + 25(p2 – p1) pizzas. It costs PK $6 to make a pizza. PK is considering charging $7, $8, $9, $10, or $11 per pizza. To maximize its expected profit, what price should PK charge for a pizza?

Expert Solution

		States of nature			Expected
	NG's price	$8	$10	$20	Monetary
	Probability	30%	50%	20%	Value
Pricing of PK	$7	$125	$175	$425	$210
	$8	$200	$300	$800	$370
	$9	$225	$375	$1,125	$480
	$10	$200	$400	$1,400	$540
	$11	$125	$375	$1,625	$550 (max)

Calculations

Decision: Based on the maximum expected monetary value rule, PK should select a price of $11.

keosha answered 9 months ago

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