2) Farm Grown sells boxes of vegetables and other farm products.Each case costs $5 and sells for $15. Any boxes left over for theday are sold to a food processing company that pays $3 per box.Farm Grown also has a policy of satisfying customers. If a customerwants a box and Farm Grown does not have any boxes they will buy itfrom a competitor for $16. Farm Grown has determined that there isa 30% chance that they will sell 100 boxes, a 40% chance they willsell 200 boxes, and a 30% chance they will sell 300 boxes.
This means that the relevant profit equation is
Profit=$15Q-$5X-$16Y+$3Z
Where
Q = the number of boxes that Fam Grown sells to customers
X = the number of boxes that Farm Grown buys for itself
Y = the number of boxes that they must buy from competitors
Z = the number of boxes sold to the food processing company.
For example, if Farm grown buys 300 boxes of vegetables and thensells 100 boxes their profit for the day would be
Profit=$15100-$5300-$160+$3200=$600
If Farm Grown buys 100 boxes of vegetables and other farmproducts but they have sales of 200 boxes their profit would be
Profit=$15200-$5100-$16100+$30=$900
Farm Grown must decide how many boxes of vegetables and otherfarm products they will need to buy.
a) Using the expected value (EV, EMV) approach how many boxes ofvegetables and other farm products should Farm Grown buy?
b) Using the expected opportunity loss criteria how many boxesof vegetables and other farm products should Farm Grownpurchase?