Because of uncertainty about future power needs

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Reference no: EM1386658

The power at Ice Station Lion is supplied via solar cells. Once a year, a plane flies in and sells solar cells to the ice station at a price of $20 per cell. Because of uncertainty about future power needs, the ice station can only guess the number of cells that will be required during the coming year (see probability distribution in Table 6). If the ice station runs out of solar cells, a special order must be placed at a cost of $30 per cell.

a) Assuming that the news vendor problem is relevant, how many cells should be ordered from the plane?

b) In part (a), what type of cost is being ignored?

TABLE 6

No. of Cells Probability

50 .20

60 .15

70 .30

80 .10

90 .15

100 .10

Reference no: EM1386658

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