John Lindsay sells CDs that contain 25 software packages that perform a variety of financial functions, including net present value, internal rate of return, and other financial programs typically used by business students majoring in finance. Depending on the quantity ordered, John offers the following price discounts. The annual demand is 2,000 units on average. His setup cost to produce the CDs is $250. He estimates holding costs to be 10% of the price, or about $1 per unit per year.

(a) What is the optimal number of CDs to produce at a time?
(b) What is the impact of the following quantity-price schedule on the optimal orderquantity?

Transcribed Image Text:

QUANTITY ORDERED PRICE RANGES FROM 501 1,001 1,500 TO 500 1,000 1,500 2,000 PRICE $10.00 9.99 9.98 9.97