Page 268 - P1 Integrated Workbook STUDENT 2018

Chapter 12

Chapter 11

Example 1

A pizza parlour sells pizza slices for $2. Each slice costs $1.50 to make, they
are made centrally and then delivered to the retail unit at the start of each day.
Any unsold slices are given to charity at the end of the day for free. Daily
demand for pizza slices with associated probabilities is as follows:

Demand Probability
per day
(slices)
80 0.1

120 0.2
160 0.5

200 0.2

Prepare a pay off table based on this data and determine the optimal
level of slices to be prepared each day.

Solution

Probability 80 120 160 200
slices slices slices slices
80 slices 0.1 $40 $(20) $(80) $(140)
120 slices 0.2 $40 $60 $0 $(60)
160 slices 0.5 $40 $60 $80 $20
200 slices 0.2 $40 $60 $80 $100
Expected value $40 $52 $48 $(16)
Using expected values it would be best to prepare 120 slices per day.

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