A firm aims to make the best inventory level decision for the coming season. The demand takes one of two possible values: high or low.
Demand is high, 50, with the probability 50%, and is low, 30, with the probability 50%.
The other parameters are as follows: Retail price is $10, the unit order cost is $5, and the salvage value of each unsold unit is $2.
What is the best order size?