33) Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 300. Store A purchases the product for $10 each unit and sells each for $20. Inventory is salvaged for $5. Which of the following statements is TRUE if Store A increases its in-stock probability from 98% to 99%?

A) Expected inventory increases.

Explanation:

The newsvendor model is used by supply chain management to determine inventory levels. It applies math and economics into a sales model where new products are very profitable, but they are also very perishable (last one or two days at most). The unsold inventory is sold at a very low salvage price, but each unit sold has a very high contribution margin.

In this case, each unit sold generates $10 in profit (100% markup), but each unit not sold results in a $5 loss (50% loss).

The mathematical formula for the newsvendor model is:

CF = CU ÷ (CU + CO)

When the in-stock probability increases, the CU increases, therefore CF increases, resulting in higher inventory levels.

due to the changes the federal reserve is making the unused reserves will impact the economy by them facing inflation. inflation is definfed as the increase in pricing of a good or service but the decline of the value of money used for purchasing those items. when the economy has a high inflation rate, they are subject to money loss and hurt on the economy.

was my answer wrong?