the case states that the mean demand is 500 while the excel file referenced in the table below has mean demand = 575. For all parts of question 4, please use mean demand = 575 not 500.

Please note that for case question 4(c), you are required to also provide an analytical answer (i.e., a new order quantity for the Express must be determined) in addition to a conceptual reasoning.

The Express was firmly established as the town newspaper after around a year of operation. Expected daily demand remained at 500, the standard deviation of daily demand at 100. As in Problem #3, Armentrout bought papers from Sheen at $0.80 per copy and retailed them at $1 each. Armentrout was responsible for unsold newspapers. Having virtually no competition from other newsstands and being firmly established in his store at the intersection of Center and Main Streets, Armentrout broadened his product line, diversifying into coffee, soft drinks, and breakfast items such as muffins and bagels. He had become friendly with a number of customers who often stopped to discuss the latest news in the Express.

Inspired by the success of the Express and his newsstand, Armentrout decided to launch his own private-label newspaper. A short, two-page newspaper, Ralph's Private Eye, carried news from around town with little analysis and no special sections. Consistent with its low-cost image, the Private was photocopied at the Kinko's store adjacent to Armentrout's newsstand. Hence, he carried no inventory, and made copies only as customer demand arose.

The marginal cost to produce the Private which retailed for $0.50 was $0.10 (i.e., the cost of photocopying the paper at Kinko's).

Sheen believed that the Private posed no threat to the Express. "IVs 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. (Use excel sheet below to solve)

The Hamptonshire Express#4				Cost Parameters
					Computer & Software	$ 10
Daily Demand Parameters			Express Stocking Quantity	Daily Newstand Rent	$ 30
Mean	575		100		Printing cost/newspaper	$0.20
Standard deviation	100				Selling price/newspaper	$1
					Salvage value/newspaper	$0
Anna's effort on Feature Section (hours)	2.25			opp. cost of Anna's time ($/hour)	10.00
					transfer price (Anna to Ralph)	$0.8
					The Private
					Retail Price	$0.50
		Channel Profit			Marginal Cost	$0.10
		93.50			P(switch/Express stockout)	40%
		(Anna + Ralph)
Anna's Profit				Ralph's Profit
27.50				66.0000

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.)