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Consider a product satisfying assumptions of the newsvendor model. Demand ~ Normal[μ=1000, σ=200]. Purchase cost: C=$100 / unit. For every unit sold, there is a profit of $40 per unit (Revenue= R= cost + profit = 100 + 40 = $140). Unsold units are disposed off at a loss of value: $10 per Unit (therefore V=$90).

a) What is the mean demand?

b) What is the newsvendor critical ratio?

c) What is the optimal order quantity Q*? (Round up to the nearest integer if you get a non-integer.)

d) If we order Q* as obtained in (c), what is the expected lost sales?

e) If we order Q* as obtained in (c), what is the expected profit?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92567367

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