Question: I am a retailer. Each week I see random demand, Dn , which I fill if I can. Past data indicatesthatP ( Dn = 0

I am a retailer. Each week I see random demand, Dn, which I fill if I can. Past data indicatesthatP(Dn =0)=0.2,P(Dn =1)=0.3,P(Dn =2)=0.3,andP(Dn =3)=0.2. Demand that I cannot fill is backlogged. I pay $1 per item per period I have on hand, and $5 per item per period I have on backlog. I have a supplier in China with lead time 3 weeks and unit purchasing cost $1, and a supplier in Baku with lead time 2 weeks and unit purchasing cost $3. I will use a single-index policy.
(a) Find the optimal base-stock level if =1.
(b) Find the optimal base-stock level if =2.
(c) Find the safety stock levels for the single-index policies found in parts (a) and (b).
(d) Find the average single-period costs for the single-index policies found in parts (a) and (b). Which one is better?

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