Q5. (15 points) Next month, Sarnia Chemical Industries (SCI) will need to purchase either 1,000, 2,000, or

3,000 gallons of a certain polymer for the upcoming quarter's production of a chemical compound. The

company has been offered the compound from three manufacturers: Winslow, Barnett, or Frume. The

price per gallon currently quoted to Sarnia Chemical Industries by the three manufacturers is a function of

their order quantity and is as follows:

Manufacturer

Winslow Barnett Frume

sarnia's 1.000

$1.00

$.90

$.80

Order

2.000

$.70

$.80

$.75

Quantity 3,000

$.60

$.65

$.65

Sarnia Chemical can either "lock-in" these prices by immediately signing a contract with one of the three

manufacturers or wait until next month to try to purchase the chemical on the spot market. If Sarnia

signs a contract it must specify the amount it will order. Any chemicals unused by Allied can be sold for

scrap at $.40 per gallon.

Sarnia's management estimates that if it waits to purchase the chemical on the spot market, the price it

will pay will be either $.70, $.90, or $1.10 per gallon. Sarnia Chemical estimates the likelihood of

the spot price being $.70 per gallon will be twice the likelihood that the spot price will be $.90 per gallon

and six times the likelihood that the spot price will be $1.10 per gallon.

Sarnia Chemical management estimates that the following probabilities hold relative to next month's

demand for the compound:

P(Demand = 1,000 gallons) = .30

P(Demand = 2,000 gallons) = .50

P(Demand = 3,000 gallons) = .20

Required

What is Sarnia's optimal strategy regarding purchasing the chemical compound?provide excel solutions