Final answer:
In the newsvendor model, mismatch costs are minimized when demand uncertainty is low or the critical ratio is high. The correct option is D: low, high. These factors enable more accurate demand predictions and prioritize avoiding underordering, respectively.
Step-by-step explanation:
The relative consequence of mismatch costs in the newsvendor model is small if demand uncertainty is low or critical ratio is high. The correct answer is D. low, high. In the context of the newsvendor model, less demand uncertainty means the newsvendor can more accurately predict customer demand, reducing the costs associated with mismatches between supply and demand. Likewise, a high critical ratio, which is the ratio of the cost of underestimating demand to the cost of overestimating demand, indicates that the costs of not having enough product are relatively higher than the costs of having too much. Thus, the newsvendor will tend to order conservatively to avoid the more expensive mistake of underordering, minimizing mismatch costs.
In this case, the newsvendor may choose to order a smaller quantity of the product to minimize the risk of excess inventory and potential loss due to obsolescence or holding costs.