Question: A refinery can blend 2 raw materials into 2 different products. At present, the management is trying to decide how much of each of the

A refinery can blend 2 raw materials into 2 different products. At present, the management is
trying to decide how much of each of the raw materials to purchase and stock, so that they can
be blended to satisfy the demand for the products in a future time period, for which the demand
of the products is unknown. The demand has to be completely satisfied, and in case of raw
material shortage the products can be outsourced at a higher cost. There is an inventory
constraint on how much raw material can be stocked in total and any raw material not used will
be lost. Consider the following problem data:
Producing a unit of product A, requires 5 units of the first raw material and 4 units of the
second raw material.
Producing a unit of product B, requires 6 units of the first raw material and 3 units of the
second raw material.
The cost of the raw materials is $5 and $7, respectively. The maximum storage capacity for
raw materials is 1000 units.
The demand is estimated to be distributed N(mean=20, std=5) for product A, and N(mean=25,
std=10) for product B. The cost of outsourcing is $100 for both products.

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