We claimed that the critical fractile formula, Equation (12.8), is appropriate because the optimal Q should satisfy
Question:
We claimed that the critical fractile formula, Equation (12.8), is appropriate because the optimal Q should satisfy cunder[1 – F(Q)] = cover F(Q), that is, the cost of understocking times the probability of under-stocking should equal the cost of overstocking times the probability of overstocking. Assume that Q satisfies this equation [which is equivalent to Equation (12.8)]. Use a probability argument to show why Q –1 and Q + 1 are both worse than Q in terms of expected cost.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Practical Management Science
ISBN: 978-1305250901
5th edition
Authors: Wayne L. Winston, Christian Albright
Question Posted: