C teddy bowers sells these parkas at 22 each unsold parkas, Ask an Expert

Management Studies

C Teddy Bowers sells these parkas at $22 each. Unsold parkas have little value; Teddy Bowers simply gives them away to a charity at the end of the winter season. (Ignore any potential tax consequence and other related costs - e.g. shipping, distribution - associated with selling the parkas.)

a. How many parkas should Teddy Bowers buy from TeddySports in anticipation of demand to maximize expected profit? What is the stock-out probability?

b. Bowers found a reliable vendor in the USA that can produce parkas very quickly but at a higher price. Now, in addition to parkas from Asia, Teddy Bowers can buy an unlimited quantity of additional parkas from the American vendor at $15 each after demand is known. What is Teddy's optimal order quantity now from its Asian supplier?

c. Suppose that Teddy decided to order 1500 parkas from Asia. What is the probability that Teddy will need to order from the American supplier once demand is known?

d. Suppose that Teddy decided to order 2000 parkas from Asia. How many parkas will Teddy expect to order from the American supplier on average?

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