12. A Newspaper seller buys papers at $1 a piece, and sells them to consumers at

Question

12. A Newspaper seller buys papers at $1 a piece, and sells them to consumers at $2 a piece papers can be sold to recycling stations at 5 cents a piece. The critical ratio for the Unsold newspaper seller is approximately (a) 0.49 (b) 0.5 (c) 0.51 (d) 0.6 13. The Newsvendor model suggests that the target service level should be (a) twice that of the critical ratio (b) the same or just above the critical ratio (c) less than the critical ratio (d) half of the critical ratio 14. In the newsvendor model, the following relationship between the selling price p, cost price c, and salvage value v holds: (a) p> v> c (b) v>p>c (c) p>c> v (d) c>p> v 15. In the (Q.r) model, average inventory is given by (a) order quantity+ safety stock (b) order quantity/2 (c) order quantity +safety stock /2 (d) order quantity 2+ safety stock

Explanation / Answer

12) cost price(CP) = $1

Selling price (SP) = $2

Salvage value (V) = 5 cents = $0.05

Underage cost (Cu) = SP-CP = $2-$1 = $1

Overage cost (Co) = Cp-V = $1-$0.05 = $0.95

Critical ratio = Cu/(Cu +Co) = 1/(1+0.95) = 1/1.95 = 0.51

So the answer is option c

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