News vendor model: John just started his entrepreneurship in the business of outdoor material. He bought wetsuits from O’Neill and is selling the suits in his shop. Each wetsuit cost him $240 to order from his supplier. He sells the suits for $350. And is planning to sell the suits in the aftermarket for half of the price (end of season) for $175. The name of the O’Neill wetsuit is heatwave 4/3. He used the table of the results of last year to compute the amount of suits to order.
a) Calculate the underage and overage cost.
b) What is the amount of JR ZEN FL 3/2 he had to order to maximize profit according to the News Vendor Model? You can find or calculate the A/F ratio by using the table in the appendix. The mean is 110 wetsuits. The standard normal distribution table is in the appendix.