Question

Produce Company needs to know the pounds of bananas to have on hand each day. Each pound of bananas costs $.25 and can be sold for $.40 Unsold bananas are worthless at the end of the day. The following demands were found after studying the last six months sales:

200 pounds of bananas one fourth of the time.

300 pounds of bananas one half of the time

400 pounds of bananas one half of the time

required

determine whether ABC grocery should order 200,300 or 400 pounds of banans

Answer 1

Ordered Quantity	Demand				Expected Value
	200	300	400
200	30	30	30		30
300	5	45	45		35
400	-20	20	60		20
Probability	0.25	0.5	0.25

Cost of the Banana=$.25 per Pound

Selling Price of the Bananas=$0.40 per Pound

If Demand is 200 and Ordered Quantity is 200 then =Selling price- cost-loss on account of unsold bananas

1-200*.40-200*0.25=80-50=30

2-200*.40-200*0.25=80-50=30

3-200*.40-200*0.25=80-50=30

4 200*0.40-300*0.25=80-75=5

5 300*.40-300*.25=120-75=45

6 300*.40-300*.25=45

7.200*.40-400*.25=--20

8.300*.40-400.25=120-100=20

9.400*40-400.25=160-100=60

Expected Value=30* .25+30*.50 +30*.25=30

5*0.25+ 45*.50 45*.25=35

-20 *25 + 20 *.50 + 60*.25=20

Ordering 300 pounds of bananas gets Maximising the Profit. So ABC Grocery should order 300 Pounds of Bananas

*note: The Problem Of Probability is ¼,   1/2, 1/4 i.e 0.25,0.50,.25 The problem got wrongly entered in respect of probability and I saw authors books it seems to be ,and the above is correct.