At the beginning of a period, a company observes its inventory level. Then an order may be placed ( and is instantaneously received). Finally, the periods demand is observed. We are given the following information : (1) A $2 cost is assessed against each unit of inventory on hand at the end of a period. (2) A $3 penalty is assessed against each unit of demand not met on time. (3) Placing an order costs $0,5 pe runit plus a $5 ordering cost. (4) During each period, demand is equally likely equal to 1,2,or 3 units. The company is considering the following ordering policy: At the end of any period, if on-hand inventory is 1 unit or less, order sufficient units to bring the on-hand inventory level at the beginning of the next period up to 4 units. Express the situation as a Markov chain.

BELOW MY PROFESSOR'S ANSWER TO THS QUESTON. I COULD not UNDERSTAND IT

Xt : \# of units in the inventory observed in each period