Question

The supermarket GoodFood orders fresh milk daily directly from Farmer Brigg.
The daily demand for milk at the supermarket is normally distributed with an expected demand of 100 gallons and a standard deviation of 20 gallons.

GoodFood pays $0.70 per gallon and sells the gallon for $1.00.
If GoodFood has milk left over at the end of the day, he cannot keep it and sell it the next day, because it will be sour.

However, Farmer Brigg can feed the leftover milk every evening to his cats and dogs. Therefore, GoodFood can sell any leftover milk at the end of the day back to Farmer Brigg at a price of $0.60 per gallon.

How many gallons of milk should GoodFood buy every day from Farmer Brigg in order to maximize his expected profit?

For the following questions, please use the Normal Tables with the z value given to two decimal places and the round up rule (pick the z value to give you the larger order quantity).

Select one:

a. 0.75

b. 113.6

c. 100

d. 115

e. 86.4

Answer 1

Can Mean (o0 St denation (): 2 20 o7Seeiy price 1 Cont Salomg price 2 9.0 Nav Cent Price undemge Ceot Cu)Seeuf 1 0.7 o.3 Cnt Salvag piia verage CGJ Cat 7-O.6 o 3 Cu O 75 Citical ratio = -> o 3+0.1 Cut Co howe Usi Nomal Table, dor P-075, we 075 68 2 pow Optinat quatiy 1 6X2 Mt (13-6 lo0+ 0 68 x 20 2