The Steak and Chop Butcher Shop purchases steak from a local

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 Excel, construct a payoff table for this decision situation and determine the amount of steak that should be ordered, using expected value. Please explain how the payoff table is developed and how expected values are arrived at... Thank you

Solution

The amount of steak that should be ordered is 22.1