Answer questions a - d

Problem 3 (15 points): Tom is in the business of selling a daily newspaper. The unit purchasing cost of a newspaper is $2.0. Tom sells the newspapers to the customers for a price of $4.0. If there are leftovers at the end of day, it can be sold to a recycling firm at $1.0 per paper. The probability distribution of demand for a given day is as follows: Demand 300 400 500 $50 600 700 800 Probability 0.25 0.15 0.15 0.11 0.14 0.10 0.10 a. What are Cu and Co? [2 pts.] Cu= Co = b. If we increase order quantity from 500 to 501, by how much will the expected profit change? [3 pts.] c. What is the optimal order size which maximizes the expected profit? [5 pts.] d. Assuming Tom buys 400 copies of the newspaper. Calculate the expected profit. Use the table below for the calculations. [5 pts.]