Question
A newspaper vendor wants to determine his daily newspaper order while considering uncertainty in customer demand. Specifically, each morning, the vendor must decide how many
A newspaper vendor wants to determine his daily newspaper order while considering uncertainty in customer demand. Specifically, each morning, the vendor must decide how many papers to buy at the wholesale price (0.42 TL). The vendor then sells these papers to the customers during the day at a retail price (1.1 TL) in the amount depending on the demand and available newspaper at hand. At the end of the day, any unsold papers can be sold back to the wholesaler at a scrapped price (0.2 TL). Since the newspaper vendor did not keep track of the past sales data of each day, he can guess a range for possible demand realizations, with the minimum and maximum values as 150 and 210. Due to this lack on information in past data, the newspaper vendor assumes demand is uniformly distributed within this range.
(a) (3%) Write down the expected profit function of the newspaper vendor using the cost values specified in the question by specifying the variables. Compute the values of the underage cost and overage cost.
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