A bakery would like you to recommend how many loaves of its famous marble rye br

Question

A bakery would like you to recommend how many loaves of its famous marble rye bread to bake at the beginning of the day. Each loaf costs the bakery ?$3.00 and can be sold for ?$7.00. Leftover loaves at the end of each day are donated to charity. Research has shown that the probabilities for demands of? 25, 50, and 75 loaves are 30%, 25%, and 45?%, respectively. Make a recommendation for the bakery to bake? 25, 50, or 75 loaves each morning.

Find the expected monetary value when baking 50 loaves.

Find the expected monetary value when baking 75 loaves.

Explanation / Answer

Ans:

Expected monetary gain = expected revenue - cost

EMV 25 loaves = 0.3 x7 x 25-3*25=-22.5
EMV 50 loaves = 0.25 x 7 x 50-3*50=-62.5
EMV 75 loaves = 0.45x7 x 75-3*75 =11.25

As,EMV is highest for 75 loaves,so they should bake 75 loaves.

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