Handi Inc., a cell phone manufacturer, procures a standard display

from LCD Inc. via “an options type of supply contract”. At the start of quarter 1 (Q1) Handi pays LCD $20 per option. At that time Handi’s forecast of demandin Q2 is normally distributed with mean 18,000 and standard deviation 4000. At the start of Q2 Handi learns exactdemand for Q2 and then exercises options at the fee of $40 per option (for every exercised option LCD deliversone display to Handi). Assume Handi starts Q2 with no display inventory and displays owned at the end of Q2are worthless. Should Handi’s demand in Q2 be larger than the number of options held, Handi purchases additional displays on the spot market for $90 per unit.
A. Suppose Handi purchases 14,000 options. What is the probability that he will need to do procurement on the spot market?
B. Given that Handi purchases 14,000 options, what is the expected number of displays Handi will buy on thespot market?
C. Given that Handi purchases 14,000 options, what is the expected number of options that Handi will exercise?
D. What is Handi’s expected total procurement cost given that he purchases 14,000 options?
E. What is the fill-rate Handi implies by purchasing 14,000 options?
F. How many options should Handi purchase from LCD, Inc.? (i.e. the optimum options)
G. What is Handi’s expected total procurement cost given the number of purchased options from part f?
H. Suppose Handi were to procure exclusively from the spot market? What would be his expected procurementcost? What would be his fill-rate in this arrangement? Also, what is the mismatch cost he incurs with this arrangement?