Company sells two competing products

Reference no: EM131106658

In most of the Walton Bookstore examples in Chapter 10, we assumed that there was a single product. Suppose instead that a company sells two competing products. Sales of either product tend to take away sales from the other product. That is, the demands for the two products are negatively correlated. The company first places an order for each product. Then during a period of time, there is demand D₁ for product 1 and demand D₂ for product 2. These demands are normally distributed with means 1000 and 1200 and standard deviations 250 and 350. The correlation between D₁and D₂ is r, where r is a negative number between - 1 and 0. The unit cost of each product is $7.50, the unit price for each product is $10, and the unit refund for any unit of either product not sold is $2.50. The company must decide how many units of each product to order. Use @RISK to help the company by experimenting with different order quantities. Try this for r = - 0.3, r = -0.5, and r = - 0.7. What recommendation can you give about the "best" order quantities as the demands become more highly correlated (in a negative direction)?

Reference no: EM131106658

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