P12_L18_Newsvendor - OM335Fall2008

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OM 335 Fall 2008 cbb2e8faff9797aa908463bd8dc58b2b11552bc0.doc P12: Newsvendor  Typically, a newsvendor specializes in a certain market segment such as hotels, grocery stores, or  vending racks. In order to get into business, the newsvendor has to sign a contract with the newspaper  company, which specifies a minimum daily order quantity. The contractual purchasing price of each copy  is 25 cents. The selling price of the newspaper is 85 cents. The newspaper company pays the vendor 5  cents for each copy returned (unsold) at the end of each day.  From past experience, the vendor has some idea of how the next day's demand is influenced by conditions  that prevail on that day. For example, the daily sales from the vending racks are highly dependent on the  weather condition that day (see the table).  Weather Possible  demand D Probability Pr(D) Cumulative probability 
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P12_L18_Newsvendor - OM335Fall2008

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