Question

i. For each purchasing and demand option, calculate the profit and loss.

		Demand
		20	40	60
	Probability →	0.4	0.4	0.2
Purchase	35	Value 1	Value 2	Value 3
	60	Value 4	Value 5	Value 6

Value 1:
Value 2:
Value 3:
Value 4:
Value 5:
Value 6:

ii. Using the expected value approach determine which purchasing option to adapt to achieve the maximum expected profit. Show your workings.

Answer both i) and ii) in the text box below-

Answer 1

Thus it is better to go for the Purchaing option of 35 units in order to earn the maximum profit based on the expected sales.

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