Blue Computers, a major server manufacturer in the U.S. currently has plants in Kentucky and Pennsylvania. The Kentucky plant has a capacity of 1 million units a year and the Pennsylvania plant has a capacity of 1.5 million units a year. The firm divides the U.S. into five markets: Northeast, Southeast, Midwest, South, and West. The firm anticipates a 50 percent growth in demand in each region this year (after which demand will remain stable). The firm wants to build a plant with a capacity of 1.5 million units per year to accommodate the growth. Potential sites being considered are in North Carolina and California. If Blue Computers has the objective of minimizing total fixed and shipping costs, where should it build its plant and what should its shipping plan be?

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 A 25 Kentucky Pennsylvania N.Carolinal California Demand Future Demand (50% Growth) 16 17 18 19 20 21 22 23 At Most One Potential Plant Opened 24 Kentucky Pennsylvania N.Carolina California Total Units Received Total Shipping and Fixed Cost (Minimized) B $ $ $ $ 1050.00 D Variable Production and Shipping Costs Northeast Southeast Midwest South 185 $ 170 $ 180 $ 220 $ 700 E 600.00 600.00 Decisions West 180 $175 $ 175 $200 $ 180 180 $ 200 $ 220 $ 215 $ 190 $ 180 $ 220 $ 400 185 $ 195 $ 400 300 175 $ 600 185 $ 195 $ F 450.00 900.00 Northeast Southeast Midwest South West G Annual Fixed Cost 150,000 200,000 150,000 150,000 Plant Opened (1 = Yes; 0 = No) 1 1 H Demand Growth Factor Capacity Limit of Current Plants 1,000 1,500 must compute must compute Potential Capacity of Any New Plant 1,500 Total Units Shipped 0.5 Linked to Plant Open Decision Linked to Plant Open Decision