Virtual Laboratory on Simulation and Gaming

The Classical NewsVendor Problem

Module Learning Objectives:


Input Parameters



Problem Description

What is Newsvendor Problem?

The newsvendor problem is to make a single-period procurement decision of a single product under stochastic demand

Newsvendor Framework:


Examples where the Newsvendor Framework is appropriate:



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Choose the appropriate answers from the given alternatives :

1) What is the main objective of a Newsvendor?

  To maximize his sales

  To maximize his profit

  To minimize the probability of stockout

2) Newsvendor model is:

  A multi period probabilistic model

  A single period probabilistic model

  A single period deterministic model

3) The Service Level is basically:

 Probability of Stockout

  Service Factor

 Shelf Availability

4) When the demand is higher than the ordered quantity which of the following cost is incurred?

 Underage Cost

 Overage cost

 Marginal Cost

5) Marginal Loss is calculated as:

  Sell Price - Shortage Cost

 Purchase Cost - Shortage Cost

 Purchase Cost - Salvage Value

6) If the overage cost is Rs 1.50 and Underage cost is Rs 0.50, what will be the probability of stockout at which the profit maximization takes place?




7) A seasonal product is having a mean demand of 500 unit and a standard deviation of 100 units.A retailer purchases the product at Rs 6 per unit and sells it at Rs 10 per unit.Extra items can be sold at half of the sell price at the end of season.Calculate the optimum quantity to be purchased using the table given below ?

 584 units

 416 units

 548 units

8) Calculate the optimal quantity if the standard deviation reduces to 75 units?

 584 units

 548 units

 563 units

9) "Newsvendor" simulation is basically

 Static Simulation

 Dynamic Simulation

 None of the above

10) In a system, an object of interest is called







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