5. The Edge Country Store must decide how many cases of milk to stock each week in order to meet demand. The probability distribution of demand during a week is shown in the following table. Each case costs the owner S11 and sells for $13. Unsold cases are sold to a local farmer (who mixes the milk with feed for livestock) for $4 per case. If there is a shortage, the owner considers the cost of customer ill will and lost profit to be S7 per case. (10 points) The demand for milk is as follows: Demand 12 13 14 15 Probability 0.15 0.50 0.25 0.10 Complete the following payoff = matrix:| Demand 13 14 12 15 12 13 14 15 8 5 L # What is the expected profit if you purchase 12 cases of milk? b How many cases should the owner buy based on the maximum expected value? What is the expected value (S) of perfect information?
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The profit is calculated as follows: - If demand is less than or equal to stock, all cases are sold at $13 each, and the profit is (13-11) x demand. - If demand is greater than stock, only the available cases are sold at $13 each, and the rest are sold to the Show more…
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