The Steak and Chop Butcher Shop purchases steak from a local meatpacking house.

Question

The Steak and Chop Butcher Shop purchases steak from a local meatpacking house. The meat is purchased on Monday at $2.00 per pound, and the shop sells the steak for $3.00 per pound. Any steak left over at the end of the week is sold to a local zoo for $.50 per pound . The possible demands for steak and the probability of each are shown in the following table:
Demand (lb.) Probability
20 .10
21 .20
22 .30
23 .30
24 .10
1.00

The shop must decide how much steak to order in a week. Using Excell, construct a payoff table for this decision situation and determine the amount of steak that should be ordered, using expected value.

Explanation / Answer

The amount of steak that should be ordered is 22.1

x p(x) x*p(x) 20 0.1 2 21 0.2 4.2 22 0.3 6.6 23 0.3 6.9 24 0.1 2.4 1 0 0 sum 22.1

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