Grocery store buys milk, Macroeconomics

Assignment Help:

Suppose that a grocery store buys milk for $2.10 and sells it for $2.60. If the milk gets old then the grocery store can sell their unsold milk back to their wholesaler for $0.60 (so the grocery store loses $1.50 on each gallon that it has to sell back to the wholesaler). Suppose that the demand for milk is normally distributed with a mean of 2500 gallons per week and a standard deviation of 400 gallons per week. The grocery store needs to decide how much milk to order. They decide that they want to order an amount of milk such that their expected profit on the last gallon sold is 0. Therefore, if p denotes the probability of selling a gallon of milk (notice that the probability of selling a gallon of milk is related to the number of gallons of milk because the demand for milk is normally distributed) then the expected profit is p (.50) + (1-p) (-1.50). If we set this equal to 0 and solve for p then we get p = .75. Therefore, if the grocery store's goal is to maximize its expected profit then they should order an amount of milk such that the probability of selling that amount of milk (or more) is 75%. How many gallons of milk should the store order?


Related Discussions:- Grocery store buys milk

Separation of growth and fluctuation, Separation of growth and fluctuation ...

Separation of growth and fluctuation It is very useful to separate the evolution of a variable which grows over time into a trend and fluctuations around the trend. The graphs

Estimate the wacc and cost of capital, Cowboy Corporation is estimating its...

Cowboy Corporation is estimating its WACC.  The firm's debt structure contains: (1) 30,100 long-term bonds with an 8.1% coupon, paid semiannually, a 10 years-to-maturity, and a $10

What are the main aspects of globalisation, What are the main aspects of gl...

What are the main aspects of globalisation Two of the other main aspects of globalisation are greater international mobility of capital and to some extent of labour. Globalisa

Inftaion, what is the cause of inflation in PNG

what is the cause of inflation in PNG

Long-run framework, In the long-run framework, budget surpluses: A. should ...

In the long-run framework, budget surpluses: A. should be run on a permanent basis since they boost saving and investment and stimulate economic growth. B. should be run whenever o

Effects of an oil price shock - empirically analyses, This paper empiricall...

This paper empirically analyses the effect of oil price shocks on key macroeconomic indicators in the United Kingdom.The aim of the paper is to establish a relationship between oil

Why does an indifference curve never meet, No indifference curve can inters...

No indifference curve can intersect due to all points on indifference curve are ranked equally preferred and ranked or less more preferred than each other point on the curve.

Strategic vs. tactical approaches, Consider Gold-Bernstein's Integration ro...

Consider Gold-Bernstein's Integration roadmap (p. 18).  Construct two business examples, one that clearly calls for a strategic integration effort and the other that call

Financial payments flow between firms and government, Explain whether, the...

Explain whether, the following statements are TRUE, FALSE or UNCERTAIN. Briefly justify your answer. (i) The circular flow shows how real resources and financial payments flow

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd