The Michael Scott Paper Company has two retail outlets not far from each other (denote them by A and B). Assume that they sell one kind of plain paper. Weekly demand for plain paper in each store is given by the following forecast - demand is either 300 units or 500 units with equal probability. Further, assume that the demands accorss the two outlets are independent.

The cost structure for plain paper is as follows - revenue per unit of sale is $4. The cost of purchasing is $1.6 per unit. Ignore all other costs including the holding cost of inventory and the goodwill cost of a lost sale, which is for the purposes of the computation we assume to be zero. Further, assume that you can only buy paper once at the beginning of the week and you cannot carry it over or salvage it at the end of the week.

7) If each store makes decisions independently of the other, how many units of plain paper should each store buy each week in anticipation of demand?

8) What is the combined total expected profit for store A and B? (in dollars)

9) Jim Halpert, the inventory manager of the Michael Scott Paper Company, decides to come up with a different operational structure. He realizes there is an empty warehouse close to both stores A and B. Therefore, instead of each store carrying its own inventory, he decides to store inventory in this central warehouse and replenish plain paper instanteneously whenever either of the retail store have demand.

Now, how many units of plain paper should the Michael Scott Paper Company buy each week for the central warehouse in anticipation of demand at both stores?

10) Under the new operational structure described above, what is the combined expected profit for both stores?