Questions
MGMT 101 LEC ONL: MANA... Study Checkpoint 8: Decision Analysis I
Single choice
Max’s Bakery specializes in sourdough bread. A loaf of sourdough costs $2.00 to make and sells for a price of $4.00 in the store that day. All loaves not sold on the day that they are made are sold on the next day at $1.00 each. Suppose that daily sourdough bread demand is either 20, 30, 40, or 50 loaves of bread, and Max also chooses between making 20, 30, 40 or 50 loaves each day. Suppose the probabilities corresponding to the demands of 20, 30, 40, and 50 loaves are 0.2, 0.3, 0.3, and 0.2, respectively. Which of the following statements are true assuming Max uses the expected monetary value (EMV) strategy to make the baking decision?
Options
A.The value of the decision to bake 20 loaves is $42.
B.The value of the decision to bake 30 loaves is $57.
C.The value of the decision to bake 40 loaves is $59.
D.The value of the decision to bake 50 loaves is $53.
E.Exactly two answers are correct.
F.None of the answers are correct.
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Step-by-Step Analysis
To assess the EMV for each baking decision, we first restate the setup: Max chooses to bake B loaves (where B ∈ {20, 30, 40, 50}). Demand D can be 20, 30, 40, or 50 with probabilities 0.2, 0.3, 0.3, 0.2 respectively. Each loaf costs 2 to make and sells for 4 today. Any unsold loaves from today can be sold tomorrow at 1 each. Profit for a given (B, D) is calculated as: revenue from today’s sales plus revenue from leftovers tomorrow minus cost of baking B. Revenue today is 4 × min(B, D). Revenue from leftovers is 1 × max(B − D, 0). Cost is 2 × B. EMV is the expectation of this profit over......Login to view full explanationLog in for full answers
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