Question: It costs a pharmaceutical company 40 000 to produce a 1000 pound
It costs a pharmaceutical company $40,000 to produce a 1000-pound batch of a drug. The average yield from a batch is unknown but the best case is 90% yield (that is, 900 pounds of good drug will be produced), the most likely case is 85% yield, and the worst case is 70% yield. The annual demand for the drug is unknown, with the best case being 22,000 pounds, the most likely case 18,000 pounds, and the worst case 12,000 pounds. The drug sells for $60 per pound and leftover amounts of the drug can be sold for $8 per pound. To maximize annual expected profit, how many batches of the drug should the company produce? You can assume that it will produce the batches only once, before demand for the drug is known.
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