When a reordering opportunity is available during a single selling season but at a higher cost (a “premium”) than for the pre-season order, this is an example of Reactive Capacity. How do the optimal (profit-maximizing) first order quantities differ with and without Reactive Capacity (the Newsvendor Model), where only one, pre-season order can take place? Hint: if you have a chance to buy during the season (= Reactive Capacity) do you think you need to buy more or less than if you don’t have that opportunity?
a) The optimal (first) order quantity without Reactive Capacity is smaller than the optimal (first) order quantity with Reactive Capacity.
b) The optimal (first) order quantity without Reactive Capacity is larger than the optimal (first) order quantity with Reactive Capacity.
c) The optimal (first) order quantities are the same.