Question

The F-M Company purchases fresh produce including carrots for $1.50 per pound from local market farmers in eastern Oklahoma and sells them to various restaurants for $2.50 per pound. Any carrots not sold to the restaurants by the end of the week can be sold to a local soup company for $0.50 per pound. The company can purchase 50, 100, 150 or 200 pounds. The probabilities of various levels of demand are as follows:

Pounds demanded by restaurants	Probability
50	0.10
100	0.20
150	0.60
200	0.10

a. Create a payoff table for the problem

b. Calculate the EMV for each alternative and make a recommendation to F-M based on the EMV.

c. Calculate the EVwithPI and EVof PI

d. How would you interpret the EVofPI?

Answer 1