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 $0.35 a copy. You sell a copy of San Pedro Times for $1.40. Daily demand is distributed normally with mean = 310 and standard deviation = 62. 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 α-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

%

Answer 1

The optimal order quantity reduces the cost of the inventory at optimum level and hence this is used by the companies as an order quanrtity.