Final answer:
The News Vendor Model is exemplified by a newsstand owner deciding on the quantity of newspapers to order for sale, balancing the risk of unsold stock against potential profits from sales, to maximize expected profit.
Step-by-step explanation:
A real life example of the News Vendor Model can be seen in the context of a retailer deciding how many copies of a newspaper to stock before a specific selling period, such as a day. The challenge lies in balancing the cost of unsold papers against the profit from selling them. For instance, consider a newsstand owner who faces uncertain demand for a special Sunday edition of a newspaper. The owner must decide on Saturday how many copies to order for the following day. If the owner orders too many and demand is lower than expected, they incur costs from unsold papers. Conversely, if the owner orders too few, they miss potential sales and profits from customers who might have purchased the paper. The News Vendor Model helps the owner to optimize order quantity to maximize expected profit considering both potential sales and the cost of overstocking.