Douglas Boats is a supplier of boating equipment for the states of Oregon and Washington. It sells 5,000 White Marine WM-4 diesel engines every year. These engines are shipped to Douglas in a shipping container of 100 cubic feet, and Douglas Boats keeps the warehouse full of these WM-4 motors. The warehouse can hold 5,000 cubic feet of boating supplies. Douglas estimates that the ordering cost is $50 per order, and the carrying cost is estimated to be $50 per motor per year. Douglas Boats is considering the possibility of expanding the warehouse for the WM-4 motors.
a. How much should Douglas Boats expand?
b. How much would it be worth for the company to make the expansion? Assume demand is constant throughout the year.