Question: Your local grocery store stocks rolls of bathroom tissue in single packages and in more economical 12-packs. You are trying to decide which to buy. The single package costs 45 cents and the 12-pack costs $5. You consume bathroom tissue at a fairly steady rate of one roll every three months. Your opportunity cost of money is computed assuming an interest rate of 25 percent and a fixed cost of $1 for the additional time it takes you to buy bathroom tissue when you go shopping. (We are assuming that you shop often enough so that you don't require a special trip when you run out.)
a. How many single rolls should you be buying in order to minimize the annual holding and setup costs of purchasing bathroom tissue?
b. Determine if it is more economical to purchase the bathroom tissue in 12-packs.
c. Are there reasons other than those discussed in the problem that would motivate you not to buy the bathroom tissue in 12-packs?