Suppose the newsvendor model describes a firm’s operations decision. Is it possi

Question

Suppose the newsvendor model describes a firm’s operations decision. Is it possible to have positive stockout probability and positive expected leftover inventory? Choose the best answer. No - if there is left over inventory then a stockout doesn’t occur. No - if the stockout probability is positive, then expected inventory must be negative. No - actual demand can differ from sales. Yes – a firm does not stockout and have leftover inventory at the same time, but the stockout probability can be positive even though there is positive expected leftover inventory. Yes - as long as the underage cost is greater than the overage cost. Suppose the newsvendor model describes a firm’s operations decision. Is it possible to have positive stockout probability and positive expected leftover inventory? Choose the best answer. No - if there is left over inventory then a stockout doesn’t occur. No - if the stockout probability is positive, then expected inventory must be negative. No - actual demand can differ from sales. Yes – a firm does not stockout and have leftover inventory at the same time, but the stockout probability can be positive even though there is positive expected leftover inventory. Yes - as long as the underage cost is greater than the overage cost.

Explanation / Answer

Yes – a firm does not stock out and have leftover inventory at the same time, but the stock out probability can be positive even though there is positive expected leftover inventory. Correct option

It cannot be possible that the company had lost sales though there was goods available left over or if the goods are available the company cannot have stock outs. But as both are averages over a period of time the stock out probability can be positive even though there is positive expected leftover inventory.

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