Every evening, Empire News needs to determine how many copies of the newspaper to purchase

for the following morning. A newspaper costs $0.50 to purchase and sells for $2.25. Any unsold

newspapers can be recycled at the end of the day at a value of $0.25 per newspaper. The following

table provides Empire News' daily demand distribution for newspapers.

Number of newspapers 160 170 175 185 200 205 210 220

Probability 0.2 0.1 0.05 0.2 0.15 0.05 0.20 0.05

a. Suppose that Empire News is considering the purchase of 200 newspapers. What is the marginal

value from a 201st newspaper? Is it protable for Empire News to purchase its 201st newspaper?

Justify your answer.

b. What is the optimal number of newspapers for Empire News to purchase each evening?