To celebrate a big achievement of mine, I invited friends to my house for a party. Now, I am thinking how many bottles of beer I need to order. Each bottle of beer costs me $2. If there is any leftover beer, I will drink it at later times. In this case, each bottle of the beer is worth $1 to me. When my friends come to the party, enjoy the party and drink the beer, I feel happy, too, and it gives me joy that is worth $5. If any of my friends cannot drink enough because of the supply shortage, I feel sad, and it is worth 0.5 dollar cost per bottle. The quantity of beer needed at the party follows a uniform distribution between 100 and 200 bottles. (You may assume the demand is a continuous uniform distribution.) Determine how many bottles of beer I need to buy to minimize my expected cost (or maximize my profit or happiness).
To celebrate a big achievement of mine, I invited friends to my house for a party. Now, I am thinking how many bottles of beer I need to order. Each bottle of beer costs me $2. If there is any leftover beer, I will drink it at later times. In this case, each bottle of the beer is worth $1 to me. When my friends come to the party, enjoy the party and drink the beer, I feel happy, too, and it gives me joy that is worth $5. If any of my friends cannot drink enough because of the supply shortage, I feel sad, and it is worth 0.5 dollar cost per bottle. The quantity of beer needed at the party follows a uniform distribution between 100 and 200 bottles. (You may assume the demand is a continuous uniform distribution.) Determine how many bottles of beer I need to buy to minimize my expected cost (or maximize my profit or happiness).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
To celebrate a big achievement of mine, I invited friends to my house for a party. Now, I am thinking how many bottles of beer I need to order. Each bottle of beer costs me $2. If there is any leftover beer, I will drink it at later times. In this case, each bottle of the beer is worth $1 to me. When my friends come to the party, enjoy the party and drink the beer, I feel happy, too, and it gives me joy that is worth $5. If any of my friends cannot drink enough because of the supply shortage, I feel sad, and it is worth 0.5 dollar cost per bottle. The quantity of beer needed at the party follows a uniform distribution between 100 and 200 bottles. (You may assume the demand is a continuous uniform distribution.) Determine how many bottles of beer I need to buy to minimize my expected cost (or maximize my profit or happiness).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education