Question
15. Consider a firm selling a perishable product to meet market demand. The demand follows Normal distribution with mean 100 and standard deviation 20. The
15. Consider a firm selling a perishable product to meet market demand. The demand follows Normal distribution with mean 100 and standard deviation 20. The selling price is $100 per unit. The firm needs to order before the selling season starts (thus, before demand uncertainty resolved). The order cost is $30 per unit. After satisfying the demand, the leftover inventory can be salvaged at value $10 per unit. Address the following questions: 1. What is the firm's optimal order quantity and corresponding profit?
2. When the firm faces shortage after demand realizes, assume it can procure from emergency supply the remaining units at $30 per unit to satisfy demand. What is the firm's optimal order quantity and corresponding profit in this case?
3. What is the impact of emergency supply on the firm's ordering decision and corresponding profit? Provide explanation to justify your answer.
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