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An inventory manager at Gap, Inc. is trying to determine how many units of a new tank top to stock for the coming season. The product costs $22 and sells for $40. Excess units are sent to an outlet store where they can be sold for $16 a piece.
a) What is U/(U+O)? How many units of the tank top should the inventory manager buy if he believes that the demand distribution has a Normal distribution with mean 8000 and standard deviation of 2000?
b) How many units of the tank top should the inventory manager buy if he believes that there is a 10% probability that the demand will be 6000; a 20% probability the demand will be 7000; a 40% probability that the demand will be 8000; a 20% probability it will be 9000, and a 10% probability it will be 10,000.
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