Demand for rug- cleaning machines at Clyde's U- Rent- It is shown in the following table. Machines are rented by the day only. Profit on the rug cleaners is $ 10 per day. Clyde has four rug-cleaning machines.
Demand Frequency
0 ............ .30
1 ............ .20
2 ............ .20
3 ............ .15
4 ............ .10
5 ............ .05
1.00
a. Assuming that Clyde's stocking decision is optimal, what is the implied range of excess cost per machine?
b. Your answer from part a has been presented to Clyde, who protests that the amount is too low. Does this suggest an increase or a decrease in the number of rug machines he stocks? Explain.
c. Suppose now that the $ 10 mentioned as profit is instead the excess cost per day for each machine and that the shortage cost is unknown. Assuming that the optimal number of machines is four, what is the implied range of shortage cost per machine?