Problem 20-10 You are a newsvendor selling San Pedro Times every morning. Before

Question

Problem 20-10 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 $0.50 a copy. You sell a copy of San Pedro Times for $1.25. Daily demand is distributed normally with mean = 335 and standard deviation-67. 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 NORMSINVO function to find the correct critical value for the given a-level. Round your z-value to 2 decimal places and final answer to the nearest whole number.) Optimal order quantity b. Based on a, what is the probability that you will run out of stock? (Round your answer to the nearest whole number.) Probability

Explanation / Answer

a) (1.25 - 0.50)/(1.25 - 0) = 0.75/1.25 = 0.60

z value for 60% is 0.253327

335 + 67*0.253327 = 351.97 say 352

b) Probability of running out of stock = 1 - 0.6 = 0.4 = 40%

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