Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.Given 0.2,0.4,and 0.4 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the optimal EOL for buying roses is
A)$700
B)$900
C)$1,500
D)$1,600

Question

Quizplus · Accepted Answer

The expected profit for buying 100 dozen roses is (0.2)($20-$10)(100) = $200. The expected profit for buying 200 dozen roses is (0.4)($20-$10)(200) = $400. The expected profit for buying 400 dozen roses is (0.4)($20-$10)(400) = $800. The optimal EOL is $800.

Blossom's Flowers Purchases Roses for Sale for Valentine's Day