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Single Period Inventory Model with Probabilistic Demand

The Fitness Shop is considering ordering a special model exercise machine. Each unit will cost the shop $220 and it will sell for $400. Any units not sold at the regular price will be sold at the year-end model clearance for $150. Assume that demand follows a normal probability distribution with µ = 10 and variance = 3. What is the recommended order quantity?

I end up with Cu=360 and Co=78... and I know that isn't correct. My P(demand <= Q*) = .66

And I end up with Q*=43. It's supposed to end up being 26. Can you show me how this problem is supposed to be worked out?

Solution Summary

Single period inventory model with probabilistic demand is investigated. Recommended order quantity is calculated. The solution is detailed and well presented.

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