Question

Bakery ABC sells bread for $2.1 per loaf that costs $0.78 per loaf to make. Bakery ABC knows that at the end of the day, he can sell all remaining bread for $0.45. Assuming Bakery ABC behaves optimally, what is the probability he would have a stockout each day?

Note: If your answer is 12.345%, record 0.1235

Answer 1

Selling price = p = $ 2.1

Cost of a bread = c = $ 0.78

salvage value of the bread = s = $ 0.45

Here stockout means when demand is higher than the number of breads made.

Optimal Probability of stockout = 1 - (p - c)/ (p - s)

= 1 - (2.1 - 0.78)/(2.1 - 0.45)

= 0.2