17. Expected profit is a direct measure of how well a company serves its custome

Question

17. Expected profit is a direct measure of how well a company serves its customers. True or False?

18. Bakery A sells bread for $2 per loaf that costs $0.50 per loaf to make. Bakery A gives a 70% discount for its bread at the end of the day. What is the salvage value of its bread? A. $2.00 B. $0.60 C. $0.50 D. $0.10

19. Demand is modeled with a normal distribution that has a mean of 300 and a standard deviation of 50. What is the probability that demand is 400 or less? A. 97.7% B. 95.4% C. 47.7% D. 2.3%

20. The difference between the __________ and _____________ is the mismatch costs in the newsvendor model. A. maximum profit, expected profit B. maximum profit, expected sales C. minimum profit, expected profit D. minimum profit, expected sales

Explanation / Answer

17) FALSE

Expected profit is not direct measure of how well a company serves its customer.

18) B ($0.60)

Salvage value is the value of the good sold that remain at the end of the day

In this case $2x(1-0.7)=$0.60 is the salvage value

19) A(97.7%)

Mean is 300 and 400 is two sigma deviations (Standard deviation is 50) away from mean.

300+ 2 x (standard deviation) = 300+2x50 = 400

now by the empirical rule of normal distribution the 95.4% population is within two sigma deviation from mean on either sides of the mean.

Now to calculate population below 400

95.4/2=47.7%

now entire area less than 300 is 50% and adding additional 47.7% to get 97.7% which is the entire population less than 400.Hence the answer is 97.7%

20) A (maximum profit, expected profit)

The maximum profit is there when no inventory is left unsold and there is no mismatch cost.So,

Mismatch cost = Maximum profit – Expected profit (this includes cost of lost sales as well as cost of leftover inventory)

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