Question: A buyer for a direct mail (catalog) merchant is trying to decide how many sweaters of a particular SKU should be purchased for the upcoming

A buyer for a direct mail (catalog) merchant is trying to decide how many sweaters of a particular SKU should be purchased for the upcoming season. The cost of the sweater to the merchant is $30.00 and it sells for $58.95. Sweaters not sold during the upcoming season are sold at a 50% discount (from the selling price). The buyer’s forecast for demand is 680 sweaters for the season. The forecasting errors are Normally distributed with an average of 0 and a standard deviation of 85 sweaters for the season.

a. In practical terms, what happens to the stock level (the amount to buy) as the price goes up, why?

b. What would the selling price have to be (keeping all other data the same) to justify ordering 680 sweaters?

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