- Research the newsvendor model (e.g., watch a video about it).
- When should this model be used to manage inventory?
- What are the parameters of the newsvendor model?
- List at least 10 examples in which the newsvendor model can be used to find the optimal order quantity.
- Calculate the cost of overage () and the cost of underage () for the following example:
- Retail price:
- Purchase price:
- Salvage value:
- Calculate the critical fractile.
- Assuming demand follows a uniform distribution between and , find the optimal order quantity.
- Now assume the demand follows a normal distribution with mean and standard deviation . Find the optimal order quantity.
- Now assume the demand follows a normal distribution with mean and standard deviation . Find the optimal order quantity.
- What conclusion can you make by comparing parts (h) and (i) about the relationship between uncertainty in order amount (represented by the standard deviation) and optimal order quantity?
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