In the quantity discount model in Example 12.2, the minimum total annual cost is region 3 is
Question:
In the quantity discount model in Example 12.2, the minimum total annual cost is region 3 is clearly the best. Evidently, the larger unit purchase costs in the other two regions make these two regions unattractive. When would a switch take place? To answer this question, change the model slightly. First, change the fixed cost of ordering to $20. Second, keep the unit cost in region 3 at $140, but change the unit costs in regions 1 and 2 to $140 + 2k and $140 + k, where you can let k vary, even to small values below $1. (Currently, k is $10.) Use SolverTable with k varied over some appropriate range to see how small k must be before it is optimal to order from region 1 or 2. What region is the optimal ordering quantity in if there is no price break at all (k = 0). How do you reconcile this with your SolverTable findings?
Step by Step Answer:
Practical Management Science
ISBN: 978-1305250901
5th edition
Authors: Wayne L. Winston, Christian Albright