Question 1
Daily sales of bread by Salvador Monella's Baking Company follow the historical pattern shown in the table below. It costs the bakery 50 cents to produce a loaf of bread, which sells for 95 cents. Any bread unsold at the end of the day is sold to the parish jail for 25 cents per loaf. Construct the decision table of conditional payoffs. How many loaves should Sal bake each day in order to maximize contribution?
| Demand | 400 | 500 | 600 | 700 | 800 |
| Probability | .20 | .20 | .40 | .15 | .05 |
Question 2
Earl Shell owns his own Sno-Cone business and lives 30 miles from a beach resort. The sale of Sno-Cones is highly dependent upon his location and upon the weather. At the resort, he will profit $120 per day in fair weather, $10 per day in bad weather. At home, he will profit $70 in fair weather, $55 in bad weather. Assume that on any particular day, the weather service suggests a 40% chance of foul weather.
a. Construct Earl's decision tree.
b. What decision is recommended by the expected value criterion?
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