http://fistfulofeuros.net/afoe/economics-and-demography/why-you-need-devaluation-open-letter-to-the-people-of-estonia/"><span class="Internetlink1">(R,Q) inventory system.</span
1. I am an old man who has beenmaking widgets all my life.
2. You are a young business majorwho has just been hired to make this company more profitable and-or efficient.
3. If you make an assumption,explicitly state what that assumption is!!!!
4. We have a warehouse that canstore supplies for up to 100,000 widgets.
5. At the moment we have suppliesfor 10,000 widgets.
6. P(Heavy day = 500 widgets) =0.02
P(Medium day =200 widgets) = 0.51
P(Light day = 100 widgets) = 0.26
P(Dead day = 50 widgets) = 0.21
7. On average, we lose 2% (ie0.02) of our stock every day due to deprecation.
8. We can change our prices as wefeel necessary. But obviously best tochoose a price and not upset our client.
9. The supplies for the widgetscost 10 Euro per widget.
10. When we order the supplies for X000 widgets,we get a (25 * X)^0.5 % discount.
11. On average it takes one week (7 days) for ourorder to arrive.
12. We can get a rush order for the widget suppliesat twice the price! It takes 2-3 daysfor that delivery.
13. Our clients have an inelastic demand forwidgets.
14. We have a competitor who can easily supplysubstitutes to our widgets, but at the moment they are not doing it.
15. Our starting capital is 500,000 Euro.
16. Widgets requires the following amount of input10(K* L)^0.5 Euro to produce.
17. Our employees earn 5 Euro per hour. We have 100 employees.
18. It currently requires 10 Euro of capital (perhour) to produce widgets.
19. Our capital depreciates at a 2% (0.02) raterper month.
20. We have 1 major client who just signed acontract that requires we are 90% (ie 0.90) operational. We can get other clients that will have thesame requirements.
21. There is a positive income elasticity for ourwidgets. We are not sure what it isthough. You can make a guess if you feelit is necessary.
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