Paper instructions:

Celta is one of the main hardcover publishers that supply Corner BookStore. Suppose that Celta has a new hardcover edition of a book. Celta sells the books to Corner BookStore for $24 and Corner BookStore sells it to public for $32. Corner BookStore plans to sell them for a month at full price and after which, all unsold stock will be sold at a discounted price of $17 per book. Their managers have come up with the following forecast for the book: Demand (in 1000 books) Probability 0.05 18 0.20 0.20 0.15 0.10 30 a) What are the unit cost of under-stocking (underestimating the demand) and the unit cost of overstocking (overestimating the demand)? b) How many books should Corner BookStore order in order to maximize its profits? c) What would be the expected profit Corner BookStore makes if they use the order size found in part (b)?

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