Question: A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution:

Number 0 1 2 3

Probability .10 .50 .25 .15

If a part fails and a spare is not available, it will take two days to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered?