4 A company inventories two items. The relevant data for each item are shown in Table 9. Determine the optimal 

inventory policy if no shortages are allowed and if the average investment in inventory is not allowed to exceed $700. If this constraint could be relaxed by $1, by how much would the company’s annual costs decrease? (This problem requires knowledge of Section 11.8.)

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TABLE 9 Item 1 Item 2 Annual demand Per-unit cost 6,000 4,000 $4.00 $3.50 Annual holding cost Price per order 30% per year 25% per year $35 $20