A pharmaceutical company can produce a drug in batches of 1,000 pounds, at a cost of $40,000 per batch. The drug synthesis process is not perfect and yields less finished product per batch than the 1,000-pound batch size. The drug is new, and this yield is uncertain. The company estimates a best-case yield of 90%, a worst-case yield of 70%, and a most-likely yield of 85%.
The annual demand for the drug is also uncertain. Based on market research, the company estimates a best-case demand of 22,000 pounds, a worst-case demand of 12,000 pounds, and a most-likely demand of 18,000 pounds.
The drug sells for $60 per pound and any leftover amounts are sold for $8 per pound to another company that can reprocess it into another compound.
The company must decide how much to produce before knowing what the demand for the drug will be. They are considering producing either 12, 16, 20, or 24 batches.