1 Newspaper Sellers Problem :

The paper seller buys the paper for 33 cents each and sells them for 50 cents. The newspaper left over
are sold as scrap for 5 cents each. The news paper can be purchased in bundles of 10. Thus the paper
seller can buy 50,60 and so on. There are 3 types of news days, good, fair and poor with probabilities of
0.35, 0.45 and 0.2 respectively. The distribution of papers demanded are given in the table. The problem
is to determine the optimum number of papers, the news paper seller should purchase.

Profit= revenue-cost from sales of newspapers- lost profit from excess demand +
salvage from sale of scrap papers.

Demand Good Fair Poor

40 0.03 0.10 0.44

50 0.05 0.18 0.22

60 0.15 0.40 0.16

70 0.20 0.20 0.12

80 0.35 0.08 0.06

90 0.15 0.04 0.00

100 0.07 0.00 0.00

Simulate for 30 days and record profits from sales each day. Suggest a suitable inventory policy for the
newspaper boy.

SOLUTION:

DAYS PROBABILITY CUM PROB RD ASSIGN

GOOD 0.35 0.35 0-35

FAIR 0.45 0.8 36-80

POOR 0.2 1 81-99

DEMAND TABLE:

GOOD FAIR POOR

Daily Cum. Cum.
Prob RD Prob Rd Prob Cum.Prob RD
demand Prob Prob
40 0.03 0.03 0--3 0.1 0.1 0--10 0.44 0.44 0--44
50 0.05 0.08 4--8 0.18 0.28 11--28 0.22 0.66 45--66
60 0.15 0.23 9--23 0.4 0.68 29--68 0.16 0.82 67--82
70 0.2 0.43 24--43 0.2 0.88 69--88 0.12 0.94 83--94
80 0.35 0.78 44--78 0.08 0.96 89--96 0.06 1 95--99
90 0.15 0.93 79--93 0.04 1 97--99 0 1 0

RD FOR TYPES RD FOR PROFIT LOSS SALES NET

DAYS DAYS OF DEMAND DEMAND BY SALE DUE TO OF PROFIT
 DAYS X'S SCRAP
DEMAND
1 4 GOOD 88 90 49.7 3.4 0 46.3
2 50 FAIR 99 90 49.7 3.4 0 46.3
3 62 FAIR 28 50 8.5 0 3.4 11.9
4 38 FAIR 90 80 49.7 1.7 0 48
5 5 GOOD 43 70 11.9 0 0 11.9
6 12 GOOD 7 50 8.5 0 3.4 11.9
7 68 FAIR 81 70 11.9 0 0 11.9
8 33 GOOD 91 90 49.7 3.4 0 46.3
9 69 FAIR 97 90 49.7 3.4 0 46.3
10 66 FAIR 3 40 6.8 0 5.1 11.9
11 7 GOOD 36 70 11.9 0 0 11.9
12 73 FAIR 2 40 6.8 0 5.1 11.9
13 8 GOOD 78 80 49.7 1.7 0 48
14 48 FAIR 79 70 11.9 0 0 11.9
15 86 POOR 8 40 6.8 0 5.1 11.9
16 28 GOOD 10 60 10.2 0 1.7 11.9
17 91 POOR 82 60 10.2 0 1.7 11.9
18 42 FAIR 33 60 10.2 0 1.7 11.9
19 80 FAIR 27 50 8.5 0 3.4 11.9
20 20 GOOD 54 80 49.7 1.7 0 48
21 24 GOOD 16 60 10.2 0 1.7 11.9
22 85 POOR 19 40 6.8 0 5.1 11.9
23 90 POOR 34 40 6.8 0 5.1 11.9
24 4 GOOD 33 70 11.9 0 0 11.9
25 5 GOOD 24 70 11.9 0 0 11.9
26 31 GOOD 17 60 10.2 0 1.7 11.9
27 9 GOOD 0 40 6.8 0 5.1 11.9
28 37 FAIR 82 70 11.9 0 0 11.9
29 31 GOOD 83 90 49.7 3.4 0 46.3
30 68 FAIR 81 70 11.9 0 0 11.9
AVERAGE 21.24333
FORMULA:

Types of days:

=IF(AND(C7>=0,C7<36),"GOOD",IF(AND(C7>=36,C7<81),"FAIR",IF(AND(C7>=81,

C7<100),"POOR")))

Profit by Sales: =IF((F5<=70),(F5*0.17),(70*0.71))

Loss due to Excess Demand: =IF((F5>70),((F5-70)*0.17),0)

Scales of scarp: =IF((F5<70),((70-F5)*0.17),0)

Net profit: =IF((F5<70),(G5+I5),(G5-H5))