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Lemington’sis trying to determine how many Jean Hudson dresses to order for the spring season. Demand...

Lemington’sis trying to determine how many Jean Hudson dresses to order for the spring season. Demand for the dresses is assumed to follow a normal distribution with mean of 400 and standard deviation of 100. The contract between Jean Hudson and Lemington’s works as follows. At the beginning of the season, Lemington’s reserves x units of capacity. Lemington’s must take delivery for at least 0.8x dresses and can, if desired, take delivery on up to x dresses. Each dress sells for £160 and Hudson charges £50 per dress. If Lemington’s does not take delivery on all x dresses, it owes Hudson a £5 penalty for each unit of reserved capacity that is unused. For example, if Lemington’s orders 450 dresses and demand is for 400 dresses, Lemington’s will receive 400 dresses and owe Jean 400(£50) + 50(£5). How many units of capacity should Lemington’s reserve to maximise its expected profit? a) Set up a simulation model to help the company make the decision of how many units of capacity to reserve. b) Discuss on the obtained results and make suggestions. For example, what if the demand for the dress has different distributions?

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milcah answered 1 year ago
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