Q1. [2pts] Dan\'s Independent Book Store is trying to decide on how many copies
ID: 425034 • Letter: Q
Question
Q1. [2pts] Dan's Independent Book Store is trying to decide on how many copies of a book to purchase at the start of the upcoming selling season. The book retails at $28.00. The publisher sells the book to Dan at $20.00. Dan will dispose of all of the unsold copies of the book at 50% off the retail price, at the end of the season. Dan estimates that demand for this book during the season is Normal with a mean of 1000 and a standard deviation of 250. The publisher is thinking of offering the following scheme to Dan. At the end of the season, they will buy back unsold copies at a pre- determined price of $17.00. However, Dan would have to bear the costs of shipping unsold copies back to the publisher at $1.00 per copy. What is the quantity that Dan should order, to maximize his expected profits?Explanation / Answer
Underage cost= 28-20=8
Overage cost= 20-28/2=6
Critical ratio=8/8+6=8/14=0.5714
Z value for the critical ratio 0.5714 is 0.18
Quantity= 1000+0.18*250=1045
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