Question

Company Delta sells bread for $2 per loaf that costs $0.40 per loaf to make. Company Delta gives a 90% discount for its bread at the end of the day. Demand for the bread is normally distributed with a mean of 300 and a standard deviation of 20. What order quantity maximizes expected profit for Company Delta? (round up to the nearest integer)

Answer 1

To maximize profits, Company Delta should determine the order quantity that maximizes expected profit. One way to do this is by calculating the point where marginal revenue (MR) equals marginal cost (MC).

Step-by-step explanation:

To maximize profits, Company Delta should determine the order quantity that maximizes expected profit. One way to do this is by calculating the point where marginal revenue (MR) equals marginal cost (MC). The formula for MR is the change in total revenue divided by the change in quantity, while MC is the change in total cost divided by the change in quantity. Setting MR equal to MC will give the order quantity that maximizes expected profit.

In this case, let's assume the order quantity is represented by the variable 'Q'. The formula for MR is ($2 - $0.4) * (1 - 0.9) * Q, which simplifies to $1.56Q. The formula for MC is $0.4Q. To find the order quantity that maximizes profit, set MR equal to MC: $1.56Q = $0.4Q. Solving this equation gives us Q = 11.

Therefore, the order quantity that maximizes expected profit for Company Delta is 11 loaves of bread.