Question

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
A. Product A, because it has less certain demand.
B. Product B, because it has more certain demand.
C. The order quantities are the same because they have the same critical ratio.
D. More information is needed to determine which has the higher order quantity.

Answer 1

Answer:

Take note that you used X and Y as the name of the two products but the options provided was changed to product A and B. Not withstanding, it doesn't affect the answer.

The correct answer is option (A) Product A, because it has less certain demand

Explanation:

A. Product A, because it has less certain demand.

Explanation:

Product X and Y both have the same critical ratio and both are normally distributed. Although, the demand for product X is uncertain but due to it's  large standard deviation of demand, the optimal order quantity is greater.

When a product has uncertain demand, it means that the seller can not predict the rate of demand of that product by the consumers.

Uncertain demands helps sellers to maximize profit or minimize cost.

In order to maximize profit, uncertain demand is put into consideration by the news vendor.

Answer 2

Answer:

A. Product A, because it has less certain demand.

Explanation:

According to the statement, the product X (A) is the one with the highest proportion of standard deviation, that is, it has a more uncertain demand. Taking into account this condition, it is expected that the number of optimal products will be greater because it has an average and critical relationship. For this reason, it is expected that the news seller will lean towards the first product, since it will generate higher income as explained at the beginning.