John Lindsay sells disks that have 25 software packages that show a variety of financial functions, including net present value, internal rate of return, and other financial programs typically used by business students majoring in finance. Depending on the quantity ordered, John offers the following price discounts. The annual demand is 2,000 units on average. His setup cost to produce the disks is $250. He estimates holding costs to be 10% of the price, or about $1 per unit per year.
a) What is the optimal number of disks to produce at a time?
b) What is the impact of the following quantity— price schedule on the optimal order quantity?