What is the cost of underestimating demand

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Reference no: EM13918746

The Bridgeport city manager and the chief of police agreed on the size of the police force necessary for normal daily operations. However, they need assistance in determining the number of additional police officers needed to cover daily absences due to injuries, sick- ness, vacations, and personal leave. Records over the past three years show that the daily demand for additional police officers is normally distributed with a mean of 50 officers and a standard deviation of 10 officers. The cost of an additional police officer is based on the average pay rate of $150 per day. If the daily demand for additional police officers exceeds the number of additional officers available, the excess demand will be covered by overtime at the pay rate of $240 per day for each overtime officer.

a. If the number of additional police officers available is greater than demand, the city will have to pay for more additional police officers than needed. What is the cost of overestimating demand?

b. If the number of additional police officers available is less than demand, the city will have to use overtime to meet the demand. What is the cost of underestimating demand?

c. What is the optimal number of additional police officers that should be included in the police force?

d. On a typical day, what is the probability that overtime will be necessary?

Reference no: EM13918746

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