You are a newsvendor selling San Pedro Times every morning. Before you get to wo

Question

You are a newsvendor selling San Pedro Times every morning. Before you get to work, you go to the printer and buy the day’s paper for $0.40 a copy. You sell a copy of San Pedro Times for $1.30. Daily demand is distributed normally with mean = 330 and standard deviation = 66. At the end of each morning, any leftover copies are worthless and they go to a recycle bin.

a. How many copies of San Pedro Times should you buy each morning? (Use Excel's NORMSINV() function to find the correct critical value for the given ?-level. Round your z-value to 2 decimal places and final answer to the nearest whole number.)

b. Based on a, what is the probability that you will run out of stock? (Round your answer to the nearest whole number.)

Explanation / Answer

We need to find Optimal order quantity before that we would calculate optimal probability

Optimal Probability=(Cost when we underestimate demand)/(Cost when we overestimate demand-Cost when we underestimate demand)

Cost of underestimation is we dont buy newspaper hence $0.4 and Cost of overestimation is $1.3-$0.4=$0.9

Probability=0.4/0.9=44.44%

Using NORMSINV on 0.4444 we get

z=-0.1509

Number of copipes to be purchased=Mean+SD(z)=330+66(-0.1509)=320

Part B)

Now we need to find probability at whixh we will run out of stock=1-Optimal Probability=1-44.44%=55.55%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.