Page 187 - Microsoft Word - 00 P1 IW Prelims.docx

Chapter 15

Answers

Chapter 2

Test your understanding 1

There are a range of possible outcomes (levels of demand) and a variety of
possible responses (number of salads to supply) and therefore it is useful to
construct a payoff table for parts (a)-(c)

Daily supply profit/(loss) outcome (x)

Daily
demand Probability (p) 40 salads 50 salads 60 salads 70 salads

40 salads 0.10 $80 (W1) $0 ($80) ($160)

50 salads 0.20 $80 $100 $20 ($60)

60 salads 0.40 $80 $100 $120 $40

70 salads 0.30 $80 $100 $120 $140

––––– ––––– ––––– –––––

EV = $80 $90 $80 $30 (W2)

Maximum profit $80 $100 $120 $140

Minimum profit $80 $0 ($80) ($160)

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