Consider a product satisfying assumptions of the newsvendor model. Demand ~ Normal[μ=1000, σ=200]. Purchase cost: C=$100 / unit. For every unit sold, there is a profit of $40 per unit (Revenue= R= cost + profit = 100 + 40 = $140). Unsold units are disposed off at a loss of value: $10 per Unit (therefore V=$90).
a) What is the mean demand?
b) What is the newsvendor critical ratio?
c) What is the optimal order quantity Q*? (Round up to the nearest integer if you get a non-integer.)
d) If we order Q* as obtained in (c), what is the expected lost sales?
e) If we order Q* as obtained in (c), what is the expected profit?