Sarah operates a concession stand at a downtown location throughout the year. One of her most popular items is circus peanuts, selling about 200 bags per month.

 Sarah purchases the circus peanuts from Peter’s Peanut Shop. She has been purchasing 100 bags at a time. However, to encourage larger purchases, Peter now is offering her discounts for larger order sizes according to the following price schedule, where the price for each category applies to every bag purchased.

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Sarah wants to use the EOQ model with quantity discounts to determine what her order quantity should be. For this purpose, she estimates an annual holding cost rate of 17 percent of the value (based on purchase price) of the peanuts. She also estimates a setup cost of $4 for placing each order.

Follow the instructions of Prob. 18.3-14 to analyze Sarah’s problem.

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