Question-2 (30 pts)

HappyNY is an Internet order business that sells one popular New Year greeting card once a year. The

cost of the paper on which the card is printed is $0.05 per card, and the cost of printing is $0.15 per

card. The company receives $2.15 per card sold. Since the cards have the current year printed on them,

unsold cards have no salvage value. Its customers are from all over the country; demand is normally

distributed with mean 8,000 and standard deviation 1500.

(Each question below is worth 5 points.)

a. What is the cost of an unsold greeting card?

b. What is the cost of a "shortage", i.e., not having a card when there is demand for it?

c. What is the critical fractile for HappyNY? What does this mean?

d. What is the optimal order quantity for the New Year greeting card?

e. If HappyNY uses the quantity in (d), what is the risk it is taking of a shortage?

f. A market research survey is able to reduce the standard deviation of demand to 1000 cards.

What is the effect of this on the optimal order quantity?