The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of nine watermelons when the demand is for seven watermelons?
A)6
B)13
C)20
D)27

Question

Quizplus · Accepted Answer

If the manager buys 9 watermelons and the demand is for 7, he will sell 7 at a profit of $3 each, which is a total profit of $21. The remaining 2 watermelons will have to be thrown away, resulting in a loss of $8 ($4 cost per watermelon x 2).

Therefore, the payoff value for purchasing 9 watermelons when the demand is for 7 is $21 - $8 = $13, which is the highest payoff value among the given options.

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