Question

A newsvendor orders the quantity that maximizes expected profit for two products, X and Y. The critical ratio for both products is .8. The demand forecast for both products is 9000 units and both are normally distributed. Product X has more uncertain demand in the sense that it has the larger standard deviation. Of which of the two products does the newsvendor order more? ______________

A. Product X because it has less certain demand.
B. Product Y because it has more certain demand.
C. The order quantities are the same because they have the same critical ratio.
D. More information is needed to determine which has the higher order quantity.

Answer 1

Correct answer is (A)

Step-by-step explanation:

Product X because it has less certain demand.

Product X has a higher standard deviation of demand, its optimal order quantity is greater given the same mean and critical ratio.