Problem 2. Dominic's supermarket chain sells Nut Flakes, a popular cereal manufactured by the
Tastee cereal company. Demand for Nut Flakes is 1,000 boxes per week. Dominick's has a
holding cost of 25 percent and incurs a fixed trucking cost of $200 for each replenishment order it
places with Tastee.
(a) Given that Tastee normally charges $2 per box of Nut Flakes, how much should
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Dominick's order in each replenishment lot?
(b) Tastee runs a trade promotion, lowering the price of Nut Flakes to $1.80 for a month.
How much should Dominick's order be, given the short-term price reduction?
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