Teddy Bower is an outdoor clothing and accessories chain that purchases a line of parkas at $10 each from its Asian supplier, TeddySports. Unfortunately, at the time of order placement, demand is still uncertain. Teddy Bower forecasts that its demand is normally distributed with mean of 2,100 and standard deviation of 1,200. Teddy Bower sells these parkas at $22 each. Unsold parkas have little salvage value; Teddy Bower simply gives them away to a charity.
a) How many parkas should Teddy Bower buy from TeddySports to maximize expected profit?
For parts b) through d), assume Teddy Bower orders 3,000 parkas (Q=3,000). b) What is Teddy Bower’s CSL (in-stock probability)?
c) On average, how many customers does Teddy Bower expect to turn away because of shortage? And on average, how many parkas will Teddy Bower liquidate after each season?
d) What is Teddy Bower’s expected profit?