Optimal Order Quantity in Operations Management

Question

Consider the newsvendor model with a normal demand distribution. The following are two separate changes to the demand distribution:

                III. The mean of demand doubles.

                IV.  The standard deviation of demand doubles.

Assume that the optimal order quantity is used to maximize the expected profit under each scenario, and that all the other parameters stay unchanged. Which of the following statements is unambiguously correct?

a) The expected profit under II is twice the expected profit under I.

b) The order quantity under I is more than the order quantity under II.

c) The mismatch costs under II is twice the mismatch costs under I.

d) None of the above.

 

 

 

 

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