Question

1. Angela Martínez is in charge of maintaining hospital supplies at a Hospital in the Metropolitan Area. During the past year, the mean lead lime demand for bandage BX-5 was 60. Furthermore, the standard deviation for BX-5 was 7. Angela would like to maintain a 90% service level.

1. Moreover, Angela knows that the carrying cost of BX-5 is 50 cents per unit per year. Compute the carrying costs associated with a 90%, a 95%, and a 98% service level.
2. What is the trade-off between efficiency and equity faced by the Inventory Manager in this Hospital?

Answer 1

Answer:

a) Carrying Cost :

Appropriate re-order point = Mean lead time demand + Safety stock

90% = 60+ 9 = 69 bandage * 0.5 each = 34.5

95% = 60+ 12 = 72 bandages * 0.5 each = 36

98% = 60+ 14 = 74 bandages * 0.5 each = 37

.

b) The first point to note is that the simple correlation between per capita income and income equality is positive.

This is essentially the positive relationship found in the more elaborate and sophisticated studies referred to above. However, the insights from economic theory suggest that this approach is problematic, as it does not take the frontier of the opportunity set into account (it implicitly assumes that countries do not differ in their distance to the frontier). It is thus very unclear what to conclude from the finding of a positive correlation between per capita income and income equality for the trade-off and thus the policy scope. Essentially, the resulting correlation mixes up movements towards the frontier and movements at the frontier.