ISYE 3232C Fall 2015 Quiz 3

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For a newsvendor problem, the optimal quantity that maximizes the expected
C C
profit is y such that y = min{y : F(y) Cpp Cvs } where F() is the CDF of
demand.
A store sells a particular brand of fresh juice. By the end of the day, any unsold
juice is sold at a discounted price of $2 per gallon. The store gets the juice daily
from a local producer at the cost of $5 per gallon, and it sells the juice at $10
per gallon. Assume that the daily demand for the juice is uniformly distributed
1
for a x b, CDF
between 50 gallons to 150 gallons. (X U(a, b), f (x) = ba
xa
F(x) = ba if a x b.)
1. What is the optimal number of gallons that the store should order from the
distribution each day in order to maximize the expected profit each day?
Cp Cv
}
Cp Cs
y 50
10 5
= min{y :

}
150 50 10 2
5
= min{y : y 100 + 50}
8
= 112.5

y = min{y : F(y)

2. If 100 gallons
are ordered, what is the expected profit per day? (You could
Rb
assume a xdx = c if a, b are identified.)
E[Profit] = (Cp Cv )E[100 D] (Cv Cs )E[(100 D)+ ]
Z 150
Z 150
1
1
dD (5 2)
((100 D) 0)
dD
= (10 5)
(100 D)
100
100
50
50
Z 100
Z 150
Z 100
1
1
1
= 5(
D
dD +
100
dD) 3 (
(100 D)
dD)
100
100
100
50
100
50
75
25
= 5 ( + 50) 3
2
2
= 400