The Orange company prices J-Pods at $550 per unit. Good Buy sells the J-Pods at $775. Annual demand at this retail price turns out to be 450,000 units. Good Buy incurs ordering, receiving, and transportation costs of $10,000 for each lot of J-Pods ordered. The annual holding cost used by the retailer is 20 percent.

a. What is the optimal lot size that Good Buy should order?

b. The Orange company has discounted J-Pods by $40 for the short term (about the next two weeks). Good Buy has decided not to change the retail price but may change the lot size ordered from Orange. How should Good Buy adjust its lot size given this discount? How much does the lot size increase because of the discount?