newsvendor

newsvendor - 1 Newsvendor Model BUAD311 Hiroshi Ochiumi 2...

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Unformatted text preview: 1 Newsvendor Model BUAD311 Hiroshi Ochiumi 2 Single Period Problem We dont know the demand but we know the distribution of the demand. There are costs associated with overage and underage. Let us determine the right purchase quantity when you have only one chance to purchase for the entire selling season. You want to determine how many toys to buy for the year-end season. You want to determine how many copies of LA Times to buy for the day. 3 Newsvendor Problem Costs Demand is Uniform between (1 and 5) Purchase cost is c = $15 Selling price is p = $25 Salvage value is v = $10 How many should you buy? 4 Newsvendor Problem If you buy one unit, You will always earn $10, regardless of the demand realization. If you buy two units, With probability 0.2, Your profit is $5 With probability 0.8, Your profit is $20 Lets work on the spreadsheet. 5 Optimal Purchase Quantity Optimal Purchase Quantity is: 4 Optimal Expected Profit: $ 22 What is the probability that you will run out of stock under the optimal policy?...
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newsvendor - 1 Newsvendor Model BUAD311 Hiroshi Ochiumi 2...

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