Question

In the Newsvendor problem, suppose that the purchase quantity is 20 and the demand is 25. The surplus quantity is

Newsvendor Problem: How many newspapers to purchase each day? C = cost to purchase a newspaper Q = number of newspapers the vendor purchases D = number of newspapers demanded R = revenue from selling a newspaper S = salvage value of unsold newspapers Net profit = R X quantity sold + S x surplus quantity - C XQ = R(min{Q,D}) + S(max{0,Q-D}) – CQ

Answer Options:

0

5

unable to be determined

-5

Answer 1

Surplus Quantity=MAX(0,Q-D)=MAX(0,Number of newspapers purchased-Number of newspapers demanded)=MAX(0,20-25)=0