What is the profit maximizing order quantity

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Question

Bob's hardware is deciding how much to order each year from their nut and bolt supplier. Demand is uncertain each year and is equally liekly to be 5,000 or 7,500 (with nothing in between). Variable cost of the nuts and bolts is random and followas a triangle distribution with a minumum of 7 cents, most likely of 12 cents and a maximum of 14 cents. Nuts and bolts sell for 20 sents each. Any nuts and bolts left over at the end of the year will in cur a holding cost that is 10% of their variable cost. Bob has to order in multiples of 500 from the supplier.

What is the profit maximizing order quantity (keep in mind here that Bob is very risk averse-- meaning he does not want to lose money)?

Reference no: EM133576700

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