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ozzi
3 years ago
14

Your supermarket is trying to determine how many meatloaf dinners should be produced on Monday. The Monday demand for meatloaf d

inners is normally distributed with a mean of 100 and a standard deviation of 20. The cost of producing a meatloaf dinner is $2.00, and the dinner sells for $7.00. It costs $0.60 at the end of the day to dispose of each unsold dinner. If the only possible production quantities are 100, 110, 120, and 130, what production quantity would you recommend
Business
1 answer:
Alecsey [184]3 years ago
3 0

Answer:

The recommended production quantity is that which maximizes profit.

<em>Quantity 130</em>

<em />

Explanation:

Quantity to produce is the problem here. Remember that this is one of the fundamental questions in the discipline of Economics.

- What to produce?     - For whom to produce?

- How to produce?      - In what quantity?

Possible Production Quantities:

100,  110,  120, and 130

Mean Demand = 100

Standard Deviation = 20

Lowest possible demand = 100 - 20 = 80units

Highest possible demand = 100 + 20 = 120units

<u>* Solve, using the mean demand for each quantity level. Assume also that on every Monday, the minimum possible quantity is what is purchased. That's the safest assumption anyway.</u>

<u />

FOR QUANTITY 100,

Revenue = 7×100 = $700      Direct cost = 2×100 = $200

Indirect cost = 0.6×20 = $12          Total cost = 200 + 12 = $212

PROFIT = 700 - 212 = $488

FOR QUANTITY 110,

Revenue = 7×110 = $770        Direct cost = 2×110 = $220

Indirect cost = 0.6×30 = $18           Total cost = 220 + 18 = $238

PROFIT = 770 - 238 = $532

FOR QUANTITY 120,

Revenue = 7×120 = $840        Direct cost = 2×120 = $240

Indirect cost = 0.6×40 = $24           Total cost = $264

PROFIT = 840 - 264 = $576

FOR QUANTITY 130,

Revenue = 7×130 = $910          Direct cost = 2×130 = $260

Indirect cost = 0.6×50 = $30            Total cost = $290

PROFIT = 910 - 290 = $620

<em>Remember, the base assumption is that only the minimum quantity of 80units is bought each Monday. This is the only way to account for wastage; which costs 0.6 dollar per unit. So, the more the quantity produced, the greater the likelihood of wastage.</em>

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