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Finding the optimal order size

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The local Office of Tourism sells souvenir calendars. Sue, the head of the office, needs to order these calendars in advance of the main tourist season. Based on past seasons, Sue has determined the probability of selling different quantities of the calendars for a particular tourist season.

Demand for Calendars Probability of Demand
75,000 0.15
80,000 0.25
85,000 0.30
90,000 0.20
95,000 0.10

The Office of Tourism sells the calendars for $12.95 each. The calendars cost Sue $5 each. The salvage value is estimated to be $0.50 per unsold calendar.

Determine how many calendars Sue should order to maximize expected profits.

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Solution describes the steps to calculate the optimal order size.

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Demand for Calendars Probability of Demand
75,000 0.15
80,000 0.25
85,000 0.30
90,000 0.20
95,000 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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