Question

The produce manger at the local grocery store must determine how many pounds of bananas to order weekly. Based upon past experience, the demand for bananas is expected to be 100,150, 200, or 250 pounds with the following probabilities: 100lbs 0.20; 150lbs 0.25; 200lbs 0.35, 250lbs 0.20. The bananas cost the store $.45 per pound and are sold for $.085 per pound. Any unsold bananas at the end of each week are sold to a local zoo for $.30 per pound. Use your knowledge of decision analysis to model and solve this problem in order to recommend how many pounds of bananas the manager should order each week.

Please use Excel Spreadsheet and use EMV. Thank you!!

Answer 1

Profit per pound= Sales per unit - Cost per unit = $0.45 - $0.085 = 0.365

Loss of unsold per pound = $0.30 - $0.45 = - $0.15

We will draw Decision tree and calculate the EMV values as shown

Ordering 200 pounds has highest EMV (56.25) hence manager should order 200 pounds.

(Sorry I have detailed calculations but not in Excel- hope this helps)

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