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A newsvendor orders the quantity that maximizes expected profit for two products, x and y. The critical ratio for both products is 0. 8. The demand forecast for both products is 9,000 units and both are normally distributed. Product x has more uncertain demand in the sense that it has the larger standard deviation. Of which of the two products does the newsvendor order more?.



Answer :

varshamittal029

Following are the calculation to the standard deviation:

Cr = 0.8, which is the critical ratio.

The value of Z corresponding to the critical ratio of 0.8 from the standard normal distribution tables is 0.8416

Unless the quantity ordered by the newsvendor is Q, then

Q = Mean value of demand+Z×Standard deviation of demand

Below are the specifications of the two products:

The mean requirement for both X and Y is 900O units.

Z value for both X and Y = 0.8416

Let

Sd₁ = Demand standard deviation for product X

Sd₂ = Demand standard deviation for product Y

Assuming that Sd₁ > Sd₂ (Product X does have a higher standard deviation than Product Y),

quantities for

X = Mean value of demand + Z × standard deviation of demand

= 9000 + 0.8416.Sd₂

X₁ > X₂ because

As a result 9000 + 0.8416Sd₁ > 9000 + 0.8416Sd₂

OR

The quantity ordered for X is > the quantity ordered for Y. As a result, Newsvendor orders Product X more frequently because it has a higher level of certainty.

In this question, all the estimates are wrong so, the correct answer is "Product X because it has less certain demand".

Learn more about Critical ratio here:

brainly.com/question/14076058

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