1. Consider a fashion retailer who buys a popular style of jacket for $420 and sells it for $570 per piece. At the end of the fashion season, any remaining jacket is sold to a discount store for $320. Seasonal demand can be approximated by a normal distribution with a mean of 800 units and a standard deviation of 100 units.

Part A. What is the optimal stocking level?

Part B. Due to unfavorable economic environment, the discount store who was buying the excess inventory, is not willing to pay more than $220 per jacket. Assuming that all other costs remain the same, how does this change your solution in Part A? What does a negative z-value imply?

2. The demand for a spare engine part is normally distributed with an average of 600 units and standard deviation of 23.9 units. The parts cost $1500 each and $5000 each when purchased on an emergency basis. Unused parts can be scrapped for 10% of their purchase price. How many parts should be acquired to maximize expected profit? Note: Even though the setting described here is not exactly the standard newsvendor problem with revenue and salvage value, the same concept of underage (shortage) and overage (excess) costs apply; you just need to derive these costs with the parameters described in this problem.