Reference no: EM133146457

The Newsvedor needs to determine how many newspapers to order for a typical weekend. The ordering cost is $1 and the selling price is $3. They estimated, most likely, the newspaper will have the following demand: 40% to be 90, 30% to be 95 and 30% to be 100. In all these cases, the best case scenario is always 110 and the worst case scenario is always 80. Define demand is high when demand >= 100.

Any leftover will be sold to other company for $0.75. On the other hand, if some of you are asking for newspaper, but you doesn't have it, you will make a big mess (e.g. spreading bad words), which estimates to be about $0.5 when demand is high, and $1 otherwise. These two numbers are difficult to estimate and therefore they are assumed to be uniform within a 100% error, e.g., when demand is high, it is uniformly distributed on $0.5 +/- 0.5, and when demand is low, it is uniformly distributed on $1 +/- 1

Assume that the newsvedor has ordered 105. What is the expected profit?