University Printing Services offer a program of reproducing class notes for part

Question

University Printing Services offer a program of reproducing class notes for participating professors teaching large classes with an enrollment normally distributed with the mean of 40 and variance of 10 students. Professor Wollega has subscribed to this program. A copy of his notes costs $8 to produce and it sells for $12. The students purchase their books at the start of the semester. Any unsold notes are shredded for recycling as he makes changes to his notes every semester. In the meantime, when all copies are sold, no additional copies are printed. If the University Printing Services wants to maximize its revenues, how many copies should it print? 1.

Explanation / Answer

Cs or Cost of shortage = Revenue per unit - Cost per unit = 12 - 8 = 4$

Ce or Cost of excess = Original cost per unit - Salvage value per unit = 8 - 0 = 8$

Service Level (SL) = Cs/(Cs+Ce) = 4/(4+8) = 4/12 = 0.33

Optimum Level = Minimum student + SL*(Maximum student - Minimum student)

Optimum Level = 200 + 0.33*(300 - 200) = 233 copies

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