A manager wants to purchase a new piece of processing equipment and must decide on tire number

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A manager wants to purchase a new piece of processing equipment and must decide on tire number of a spare part to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage of parts can be described by the following distribution:

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If the part fails and a spare is not available, it will take two days to obtain a replacement and install it. The cost for idle equipment is $400 per day. The spare is expected to cost the same in the future ($200 per unit). What quantity of spares should be ordered?
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Operations Management

ISBN: 978-0071091428

4th Canadian edition

Authors: William J Stevenson, Mehran Hojati

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