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A supplier needs to supply 1 0 retailers ( indexed as i = 1 , . . . , 1 0 ) . In each

A supplier needs to supply 10 retailers (indexed as i =1,...,10). In each day, each retailer i has probability pi =0.7 to
place an order (to the supplier), with order quantity Di following a discrete uniform distribution U{1,,10}. Retailers
ordering decisions are independent of each other. The suppliers unit production cost is $1K per unit. In each day, the
supplier first produces x =50 units of the product at unit cost $1K; then it receives all the orders from the retailers and
satisfies them as much as possible. The wholesale price is $10K per unit, and each unit of leftover costs the supplier $1K
to dispose. Let V(x) be the suppliers expected daily profit under production quantity x. Assume sample size N =365.
1. What is the distribution (histogram) of the daily total order quantities received by the supplier? Plot it.
2. What is the 90% confidence interval of the expected daily profit for the supplier?
3. What is the probability that the supplier experiences shortage? What is the probability that the supplier has
leftover?
4. What is the quantity x that maximizes the suppliers expected profit? Graph V(x) against x to support your
conclusion.
5. When the retailers consolidate their orders, they can get the discounted wholesale price $7K. They coordinate their
ordering process as follows: in each day, each supplier i first observes their individual demand Di U{1,...,10}.
Then if the consolidated demand 10
i=1 Di >=35, all orders will be placed; otherwise, no order will be placed. The
suppliers operation and other parameters remain the same. In this case, what is the profit-maximizing production
x for the supplier?

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