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Every month, a restaurant consumes about 500 kg of beef. Currently, the restaurant pays $10 per kilogram for 500 kg every order. The supplier had just offered a quantity discount, with orders of 800 kilos or more being filled at $8 per kilogram. Each time the restaurant places an order, it pays $120, plus an annual holding cost of 20% of the purchase price per kilogram.

QUESTION:

1 (a)Determine the order size that minimizes the total cost.

1 (b) If the supplier offered the discount at 1,000 kg instead of 800 kg, what order size would

minimize the total cost?

1 (c) Assume that fresh meat will spoil within a month, will the optimal order size increase or

decrease?