BUS 474 Lecture Notes - Lecture 12: Profit Motive, Opportunity Cost, Profit Margin
17 Apr 2018
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At this optimal stocking quantity, it is estimated that anna will maximize her profits at . 4364 per day with a fill rate of 98%. If g(cid:396)aphed, a(cid:374)(cid:374)a"s p(cid:396)ofit fu(cid:374)(cid:272)tio(cid:374) of (cid:374)e(cid:449)spape(cid:396)s is (cid:272)o(cid:374)(cid:272)ave down, meaning it takes the shape of an upside down u. Estimated profits will continue to increase as anna stocks more newspapers until she reaches the optimal stocking quantity of 584. This is largely due to the benefits of being able to satisfy the demand of more potential customers and likelihood of generating more revenues outweighing the increased costs incurred from printing more newspapers. Anna decides to stock more newspapers than the optimal amount, her expected profits decrease because the increase in estimated inventory costs will likely outweigh the probability of generating more revenue. Therefore, with all cost factors and demand held constant, anna projects to lose profits with any changes to her optimal stocking quantity: the results are confirmed when compared to the newsvendor model of:
