Palmer Cheese Company is a small manufacturer of several different cheese produc

Question

Palmer Cheese Company is a small manufacturer of several different cheese products. One product is a cheese spread sold to retailoutlets. Susan Palmer must decide how many cases of cheese spread to manufacture each month. The probability that demand will be 6cases is 0.1, for 7 cases it is 0.3, for 8 cases it is 0.5, and for 9 cases it is 0.1. The cost of every case is $45, and the priceSusan gets for each case is $95. Unfortunately, any cases not sold by the end of the month are of no value as a result of spoilage.How many cases should Susan manufacture each month?

Explanation / Answer

The likely outcome = sum of (probability*demand)

Thus likely demand = 7.6 cases or 8 cases (rounded off).

So, Susan should make 8 cases each month.

Demand Probability Demand *probability 6 0.1 0.6 7 0.3 2.1 8 0.5 4 9 0.1 0.9 Total 7.6

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