Question

Mario, owner of Mario’s Pizza Emporium, has a difficult decision on his hands. He has found that he always sells between one and four of his famous “everything but the kitchen sink” pizzas per night. These pizzas take so long to prepare, however, that Mario prepares all of them in advance and stores them in the refrigerator. Because the ingredients go bad with in one day, Mario always throw out any unsold pizzas at the end of each evening. The cost of preparing each pizza is $7, and Mario sells each one for $12.In addition to the usual costs, Mario also calculate that each “everything but” pizza that is ordered but he cannot deliver due to insufficient stock costs him $5 in future business. How many “everything but” pizzas should Mario stock each night in order to minimize expected loss if the number of pizzas ordered has the following probability distribution? Number of pizzas demanded 1 2 3 4 Probability 0.40 0.30 0.20 0.10​

Answer 1

Step-by-step explanation:

In addition to the usual costs, Mario also calculate that each “everything but” pizza that is ordered but he cannot deliver due to insufficient stock costs him $5 in future business. How many “everything but” pizzas should Mario stock each night in order to minimize expected loss if the number of pizzas ordered has the following probability distribution?

Number of pizzas demanded 1 2 3 4

Probability 0.40 0.30 0.20 0.10