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Demand is predicted to be between 11 and 15, with the probabilities as follows
Demand Probability
11 0.112 0.2
13 0.2
14 0.3
15 0.2
You can order the products from the manufacturer for 100 dollars per unit. Each customer will pay 350 dollars to buy a product from you. These products have no values after the convention.
(a) If you start with no products on hand. How many products should you order from the manufacturer?
(b) Continue with question (a), what is your optimal expected profit?
(c) Suppose that you start with 12 products on hand. If you order additional products from the manufacturer, there is a setup cost of 120 dollars (you still need to pay 100 dollars for ordering each additional product). What is your optimal decision?
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