An appliance store can place orders for refrigerators at the beginning of each month for immediate delivery. A fixed cost of $100 is incurred every time an order is placed. The storage cost per refrigerator per month is $5. The penalty for running out of stock is estimated at $150 per refrigerator per month. The monthly demand is given by the following pdf:

The store’s policy is that the maximum stock level should not exceed two refrigerators in any single month. Determine the following:

(a) The transition probabilities for the different decision alternatives of the problem.

(b) The expected inventory cost per month as a function of the state of the system and the decision alternative.

Transcribed Image Text:

Demand.x 0 1 p(x) .2 .5 2 .3