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Newsvendor model with Normal demand Consider a product satisfying assumptions of the newsvendor model. Demand ~ Normal[μ=1000, σ=200]. Purchase cost: $100/unit. For every unit sold, there is a profit of $30 per unit. (Revenue = cost + profit = 100 + 30 = $130). Unsold units are disposed off at a loss of value: $20 per Unit (therefore V=$80).

a) What is the mean demand?

b) What is the newsvendor critical ratio?

c) What is the optimal order quantity Q*? (Use Standard Normal Distribution Function Table 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? (Use Standard Normal Loss Function Table)

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.:- M92564106

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