Question

In a newsvendor model where the demand has normal distribution, if Co < Cu, i.e., the overage cost is lower than the underage cost, then the optimal ordering quantity (i.e., the Newsvendor ordering quantity) will be:_______.

Answer 1

maximum

Step-by-step explanation:

The newsvendor model may be defined as the mathematical model which is characterize by the fixed prices as well as the uncertain demand for the perishable products. This model is mainly used to determine the optimal inventory level.

According to the newsvendor model, there is only one opportunity to order. The cost of buying large quantities of the products may result in disposing them or selling the products at a lower price.

The optimal ordering quantity is maximum when the underage cost is higher than the overage cost.