1. Teddy Bower sources a parka from an Asian supplier for $10 each and sells them to customers for $22 each. Leftover parkas at the end of the season have no salvage value. The demand forecast is normally distributed with average 2,100 parka and standard deviation 1,200 parka. Now Teddy Bower found a reliable vendor in the United States that can produce parkas very quickly but at a higher price than Teddy Bower’s Asian supplier. Hence, in addition to parkas from Asia, Teddy Bower can buy an unlimited quantity of additional parkas from this American vendor at $15 each after the season demand is known. If Teddy Bower uses both its Asian and American suppliers correctly, what is its expected mismatch cost?
About $8,500
About $7,500
About $6,500
About $9,500
2. EcoTable is a retailer of specialty organic and ecologically friendly foods. In one of their Cambridge, Massachusetts, stores, they plan to offer a gift basket of Tanzanian teas for the holiday season. They plan on placing one order and any leftover inventory will be discounted at the end of the season.Expected demand for this store is 45 baskets normally distributed with a standard deviation of 10 baskets. The gift basket sells for $55, the purchase cost to EcoTable is $32, and leftover baskets will be sold for $20. What is the expected profit if EcoTable uses the newsvendor model correctly?
About $600
About $900
About $1,500
About $1,200