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1. A retailer must decide each morning how many of a type of perishable commodity to include in his inventory. The commodities cost him
1. A retailer must decide each morning how many of a type of perishable commodity to include in his inventory. The commodities cost him 20 TL per unit and sold for 50 TL per unit, realizing a profit of 30 TL per unit. Any unsold item at the day's end is a total loss to the retailer. By experience the retailer was able to assign the following probabilities to the daily demand, denoted by D: Pr(D=0) = 0; Pr(D=1) = 0.5; Pr(D=2) = 0.3; Pr(D=3) = 0.2; Pr (D>4) = 0. a) Construct the opportunity loss table. b) Find the inventory level that minimizes the expected opportunity loss.
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