# Consider the relationship between TEC and O'Neill with unlimited, but expensive, reactive capacity. Recall that TEC is willing to give

## Question:

a. What is TEC's expected profit with the traditional arrangement (i.e., a single order by O'Neill well in advance of the selling season)? Recall that O'Neill's optimal newsvendor quantity is 4,101 units.

b. What is TEC's expected profit if it offers the reactive capacity to O'Neill and TEC's first production run equals O'Neill's first production order? Assume the demand fore- cast is normally distributed with mean 3,192 and standard deviation 1,181. Recall, O'Neill's optimal first order is 3,263 and O'Neill's expected second order is 437 units.

c. What is TEC's optimal first production quantity if its CEO authorizes its production manager to choose a quantity that is greater than O'Neill's first order?

d. Given the order chosen in part c, what is TEC's expected profit?

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**Related Book For**

## Matching Supply with Demand An Introduction to Operations Management

**ISBN:** 978-0073525204

3rd edition

**Authors:** Gerard Cachon, Christian Terwiesch

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