Consider a product satisfying assumptions of the newsvendor model. Demand ~ Normal[μ=1000, σ=200]. Purchase cost: $100 / unit. For every unit sold, there is a profit of $30 per unit. (Revenue = cost + profit = 100 + 30 = $130). Unsold units are disposed off at a loss of value: $20 per Unit (therefore V=$80).
1. What is the mean demand?
2. What is the newsvendor critical ratio?