Consider a firm that knows that the price of the productit is ordering is going to increase permanently by $X. Howmuch of the product should be ordered before the priceincrease goes into effect?Here is one approach to this question: Suppose the firmorders Q units before the price increase goes into effect.a What extra holding cost is incurred by ordering Qunits now?b How much in purchasing costs is saved by orderingQ units now?c What value of Q maximizes purchasing cost savingsless extra holding costs?d Suppose that annual demand is 1,000 units, holdingcost per unit-year is $7.50, and the price of the item isgoing to increase by $10. How large an order should beplaced before the price increase goes into effect?

Consider a firm that knows that the price of the productit is ordering is going to increase permanently by $X. Howmuch of the product should be ordered before the priceincrease goes into effect?Here is one approach to this question: Suppose the firmorders Q units before the price increase goes into effect.a What extra holding cost is incurred by ordering Qunits now?b How much in purchasing costs is saved by orderingQ units now?c What value of Q maximizes purchasing cost savingsless extra holding costs?d Suppose that annual demand is 1,000 units, holdingcost per unit-year is $7.50, and the price of the item isgoing to increase by $10. How large an order should beplaced before the price increase goes into effect?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter7: Nonlinear Optimization Models

Section7.3: Pricing Models

Problem 15P

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A firm knows that the price of the product it is ordering is going to increase permanently by X dollars. It wants to know how much of theproduct it should order before the price increase goes into effect. Here is one approach to this problem. Suppose the firm places one order for Q units before the price increase goes into effect.a. What extra holding cost is incurred by ordering Q units now?b. How much in purchasing costs is saved by ordering Q units now?c. What value of Q maximizes purchasing cost savings less extra holding costs?d. Suppose that the annual demand is 1000 units, the holding cost per unit per year is $7.50, and the price of the item is going to increase by $10. How large an order should the firm place before the price increase goes intoeffect?
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