You are in charge of the annual banquet for the Football Boosters Club at your college. One week before the banquet you must make a commitment for the number of dinners. The price for these dinners will be $7 each. If fewer people show up than the committed number, you are still required to pay for the full number. If more people attend than your committed number, they will be served at a cost of $12 each. For example, if you commit for 200 people and 200 or fewer show up, you still have to pay $1,400. If more than 200 attend, you pay $1,400 plus $12 for each dinner in excess of 200. Your judgment about the number attending can be described by a normal probability distribution with mean of 400 people and standard deviation of 100.
a) Suppose the cost of the banquet is being borne entirely by the Alumni Association, and your objective is to minimize the cost, given that all who attend will be served. How big a prior commitment for dinners should you make to the hotel?
b) Suppose there is a charge of $10 for every person attending. Your objective is to maximize the profit from the banquet. In this case, how large a prior commitment should you make to the hotel?
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