Exercise 9: The Newsvendor Problem

A newsvendor purchases newspapers for $0.15 each at the start of each day and then sells them on the corner for $0.50. Any papers left over at the end of the day are sold for $0.05 each to a recycler. If the newsvendor sells out during the day, there is no opportunity to get additional papers.

Construct a spreadsheet that calculates the newsvendor's profit for any number of papers purchased at the beginning of the day and any number of papers wanted during the course of the day. (Notice that the number of newspapers wanted during the day may exceed the number of newspapers purchased at the beginning of the day, but the newsvendor will realize sales for only the demand that can be satisfied with a newspaper.) Set up your spreadsheet so that the number of newspapers purchased is contained in one cell and the number of newspapers demanded is contained in another:

Number of newspapers purchased = 0 Number of newspapers demanded = 0

1. What is the profit for the following four scenarios?

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Papers purchased 80 80 90 90 Papers demanded 60 100 60 100

2. A Chart of Profit as a function of Demand assuming the news vendor purchases 90 papers.