The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Since this seedless watermelon costs $4, will sell for $7, and is highly perishable, he only expects to sell between six and nine of them. If the merchant purchases eight watermelons, the minimum opportunity loss occurs when the demand is how many units?
A) 6
B) 7
C) 8
D) 9

Question

Quizplus · Accepted Answer

To determine the minimum opportunity loss, the manager must find the demand that will result in selling all eight watermelons without having any leftovers.

If the demand is less than 8, there will be some leftover watermelons that cannot be sold and will go to waste. This will result in a loss of $4 per unsold watermelon, which is the cost of each unit.

If the demand is more than 8, the manager will not be able to meet the demand and will miss out on potential revenue from selling additional watermelons.

Therefore, the best choice is to purchase eight watermelons and hope for a demand of exactly 8 units to minimize any potential losses. Any other demand will result in either unsold inventory or missed revenue.

The Manager of Paul's Fruit and Vegetable Store Is Considering