Question
Larry sells a highly perishable food product to construction workers at 777
Peachtree, a new luxury high rise under-construction in mid-town Atlanta. The
product costs Larry $4.50 wholesale and he sells the product for $12.00 to his
construction worker clientele. Ignore sales tax, Larry doesn't pay it anyway.
When Larry runs out of product, he simply takes orders from his remaining
customers, walks to the Varsity Drive In, and buys the exact amount of product
needed to fill the orders. Larry charges each customer exactly $1.50 more per
product than his costs, which will be variable based on the exact food orders
placed by the individual workers. Larry only provides this "courier" service if
he runs out of his own product and performs the service to maintain goodwill
with his customers. If Larry instead of being under (on his own product), is
over, he has to discard the unsold product. Larry believes that his demand
follows a normal distribution with a mean of 175 and a standard deviation of 18.
Considering this information, what is Larry's optimum service level? Select the
closest answer.
Larry sells a highly perishable food product to construction workers at 777
Peachtree, a new luxury high rise under-construction in mid-town Atlanta. The
product costs Larry $4.50 wholesale and he sells the product for $12.00 to his
construction worker clientele. Ignore sales tax, Larry doesn't pay it anyway.
When Larry runs out of product, he simply takes orders from his remaining
customers, walks to the Varsity Drive In, and buys the exact amount of product
needed to fill the orders. Larry charges each customer exactly $1.50 more per
product than his costs, which will be variable based on the exact food orders
placed by the individual workers. Larry only provides this "courier" service if
he runs out of his own product and performs the service to maintain goodwill
with his customers. If Larry instead of being under (on his own product), is
over, he has to discard the unsold product. Larry believes that his demand
follows a normal distribution with a mean of 175 and a standard deviation of 18.
Considering this information, what is Larry's optimum service level? Select the
closest answer.
