Consider a chocolate manufacturing company that can produces two types of chocolate – A and B. Both the chocolates require Milk and Choco only. To manufacture each unit
of A and B, the following quantities are required:
• Each unit of A requires 1 unit of Milk and 2 units of Choco
• Each unit of B requires 2 unit of Milk and 1 units of Choco
Currently, the milk price is 1$/unit and the choco price is 1$/unit.
We can sell chocolate A for 10$ and Chocolate B for 8$. Assume we are planning for
the next two years. The milk prices may go up 20% by probability of 40% and may go
down 10% by probability of 60%.
The choco prices may go up 30% by probability of 50% and may go down 20% by
probability of 50%.
The current demand for A is 1000 units per year. The demand is assumed to stay fix.
We have limited budget. Lets calculate the profit we may get from producing any of
these chocolates to decide about best option for the next two years (decide about to
produce A or B?). The discount rate is k=0.1.
Hint: assume we have period 0, 1, 2