Question

A supermarket chain has purchased 6 cases of milk from a local dairy at a price of $100/case. A case of milk is sold in the chain’s three stores for $200/case. The diary must buy back any milk that is left at the end of the day for $50/case. Demand for milk at each of the three stores is uncertain, but past data indicate that the daily demand at each store is as shown in the table below. The supermarket chain wishes to maximize the expected net daily profit from allocating the cases to the 3 stores.

	Daily Demand (Cases)	Probability
Store 1	1	0.6
	2	0
	3	0.4
Store 2	1	0.5
	2	0.1
	3	0.4
Store 3	1	0.4
	2	0.3
	3	0.3

Identify the following using proper notation and a written description of their context to this problem:

Stages: Each one of the stores

Decision Variables: Number of cases of milk to allocate at each store

States: Number of cases of milk not assigned

Decision Cost or Decision Benefit:

Boundary Conditions:

Answer 1