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Sheen believed that the Private posed no threat to the Express. It's a rag! she exclaimed; I cannot imagine any consumer choosing the Private instead

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Sheen believed that the Private posed no threat to the Express. "It's a rag!" she exclaimed; "I cannot imagine any consumer choosing the Private instead of the Express." Armentrout agreed that his newspaper was terrible and that no customer would choose the Private over the more expensive Express, but he observed that he frequently stocked out of the latter. He estimated that approximately 40% of the customers who experienced a stockout of the Express, would switch to buy the Private. The other 60% would not buy a newspaper at his stand on that particular day. a. If you were Armentrout, how many copies of the Express would you stock? Use spreadsheet "Hamptonshire Express: Problem #4" to determine the optimal stocking quantity (the spreadsheet calculates h to maximize Sheen's profits for the given wholesale price). Compare your stocking decision with the optimal decision in Problem #3a. b. Why does the optimal stocking quantity differ from the answers given in Problems #1, #2, and #3? Is this answer consistent with the logic of the newsvendor model? c. Armentrout's newsstand was constrained for space as he continued to add new products. To get a better idea of true profitability for each product, he decided to allocate the cost of real estate according to the space occupied by each product. If he figured daily real estate costs for each additional newspaper at approximately 3 cents, how would this affect his stocking decision? (Answer this question qualitatively.)

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