Answer Happy

3) A store of luxury product sells an item whose daily demand (D) can be described by the following probability mass function: 0 1 2 3 Daily Demand (d) Probability (P(D-d)) 0.1 0.3 0.4 0.2 I This item is very sensitive and expensive, the store wants to decide best ordering policy. They are comparing two ordering policies: (1) Order up to 3 units at the end of the day if the stock level (at the end of the day) is less than 2, else do not order. (2) Order 3 units at the end of the day if the stock level (at the end of the day) is zero, else do not order. Items ordered at the end of a given day are assumed to be delivered at the beginning of the next day (before the demand is realized). The store makes a profit of $2000 per unit for each unit sold. Excess demand is assumed to be a lost sale without any cost. The fixed ordering cost per shipment is $2000, and the cost of holding excess units per unit per day is $4. Holding cost is charged to the ending inventory on a given day. Which policy should the store adopt to maximize the expected daily profit?