Question

1. A perishable dairy product is ordered daily at a particular supermarket. The product, which costs $1.2 per unit, sells for $1.64 per unit. If units are unsold at the end of the day, the supplier takes them back at a rebate of $1 per unit. Assume that daily demand is approximately normally distributed with µ = 145 and σ = 30.
   
   Note: Use Appendix B to identify the areas for the standard normal distribution.

   1. What is your recommended daily order quantity for the supermarket? Round your answer to the nearest whole number.
      
      Q^* =
      
   2. What is the probability that the supermarket will sell all the units it orders? Round your answer to three decimal places.
      
      P(Stockout) =
      
   3. In problems such as these, why would the supplier offer a rebate as high as $1? For example, why not offer a nominal rebate of, say, 25¢ per unit? What happens to the supermarket order quantity as the rebate is reduced?
      
      The lower rebate decreases
      • increases
      • decreases
      the quantity that the supermarket should order.

Answer 1