12-packs. You are trying to decide which to buy. The single package costs 45 cents and the 12-pack
costs $5. You consume bathroom tissue at a fairly steady rate of one roll every three months. Your
opportunity cost of money is computed assuming an interest rate of 25% and a fixed cost of $1 for the
additional time it takes you to buy bathroom tissue when you go shopping. (We are assuming that you
shop often enough so that you don't require a special trip when you run out.)
(a) How many single rolls should you be buying in order to minimize the annual holding and
setup costs of purchasing bathroom tissue?
(b) Determine if it is more economical to purchase the bathroom tissue in 12-packs.
Fig: 1