Question: Question 2: The Secure Garage door Company is trying to decide how many of a particular door to stock. The selling price per door is $610, and the cost per door to Secure is $400. If extra doors are left over when next year’s model is available, the company will sell the leftovers at $350 each. Secure figures it will be able to sell a leftover door at this price with probability 0.7. However, with probability 0.3 there will be no demand for the leftover, and the company will have to dispose of the door at a cost of $50. The loss of goodwill for not having a door when it is demanded is estimated to be $45. Demand for these doors is normally distributed with mean 130 and standard deviation 40. (Hint: the Salvage value is the weighted average of the salvage price of $350 and the disposal cost of $50).

a. How many doors should the company stock in order to maximize its expected profit?

b. How will the order quantity change if the selling price increases while everything else stays the same?

c. How will the order quantity change if the salvage value decreases while everything else stays the same?

d. If the company decides to have a service level of 90%, how may doors should it stock?