Problem 1: 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 pays $1 per bag. Sarah purchases the circus peanuts from Peter's Peanut Shop. She has been purchasing 100 bags at a time. To encourage larger purchases, Peter now is offering her discounts for larger orders according to the following price schedule.

Discount Category Order Quantity Price per Bag
1 1 to 199 $1.00
2 200 to 499 $0.95
3 500 or more $0.90

Sara estimates an annual holding rate of 17% of the value of the peanuts. She also estimates an ordering cost of $4 for placing each order.

Sarah wants to decide which discounted price to adopt (if at all) and how much she should order.

a. 2006
b. 345
c. 354
d. 500