Newsvendor Problem

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Definition: Newsvendor Problem

It is a model which is mostly used in the field of inventory management to optimize its inventory level.  It is used for perishable items for which demand is unknown and price is fixed. If decided to keep inventory at level X then all the demand above this would be a lost sale.

But if demand is less than X then the excess units would be lost as it useless for next day’s sale.

Eg: This name has been derived from newspaper stand where vendor has to decide its stock for each day. Unsold newspaper would be of no use for the next day.



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