9-698-053 REV: AUGUST 30, 2002 V.G. NARAYANAN ANANTH RAMAN Hamptonshire Express Problem #1 Anna Sheen, upon graduating from a Boston-area university with a degree in journalism and operations research, returned to her hometown of Hamptonshire, Pennsylvania, to start a daily newspaper. The Hamptonshire Express emphasized local news which Sheen believed was not adequately covered by big-city newspapers such as the The Philadelphia Inquirer, Pittsburgh PostGazette, and The New York Times
Problem 1 a. Using the function provided, the optimal stocking quantity, which maximizes expected profit, is approximately 584 newspapers. If 584 newspapers were to be ordered, Hamptonshire Express will net an expected profit of $331.436 per day. b. Using the Newsvendor Formula in Excel, or Q* = Norminv(Cu/(Cu+Co), Mean, Std Dev) and the values: Cu = 1 - .2 = .8 Co = .2 Mean = 500 Std Dev = 100 Q* = 584.1621 or 584 newspapers. This verifies the quantity in part (a). Problem 2 a. Based on the simulation