Demand met equals one minus stock-out probability

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Reference no: EM132111424

Argue for or against For each statement below, argue for or against it.

(a) A firm facing stable demand and costs (i.e., an EOQ-type setting) operates with order quantity Q for a year. Due to an increase in the opportunity cost of capital, the per-unit annual holding cost doubles in the next year from H to 2H, and as a result the firm cuts its order size in half, i.e., now orders Q/2 units in each order. Then it must be that the firm either did not order optimally when annual per-unit holding cost was H, or when the same cost became 2H.

(b) In a newsvendor-type setting (i.e., one-shot ordering problem in the presence of demand uncertainty), an increased order quantity leads to (weakly) increased expected sales.

(c) In a newsvendor-type setting, the expected fraction of demand met (i.e., fraction of expected sales over expected demand) equals one minus stock-out probability.

Reference no: EM132111424

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