Question: To purchase new processing equipment, a manager must decide on the number of spare parts to order with the new equipment. The spares cost $200

To purchase new processing equipment, a manager must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution:

If a part fails and a spare is not available, two days will be needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered?

# of Spares	Probability of Demand
0	.30
1	.40
2	.2
3	.1

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