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thegingercoffee thegingercoffee
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6 years ago
Milk is stocked at the grocery store each week. At the end of the week unsold milk is reduced in price by 70 and always sells for this lower price instantly.
 
  If weekly demand for milk is normally distributed with a mean of 200 gallons and standard deviation of 25 gallons, find the price for which a fresh gallon of milk sells. Assume a service level of 95 and that the store purchases milk for 2 per gallon.
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6 years ago
Service level = Cs/(Cs + Co). If the selling price per gallon is X the salvage price is .3X. Thus, Cs = X-2 and Co = 2 - .3X. Solving .95 = X - 2/(X - 2 + 2 - .3X) gives X = 5.97, so the milk sells for 5.97 per gallon.
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