Would the overage cost, Co, decrease or increase? Provide your answer with a justification.

• In a newsvendor system, if the salvage value of a product increases but all other parameters (e.g., sales price, unit purchasing cost) stay the same:
  1. Would the overage cost, Co, decrease or increase? Provide your answer with a justification.
  2. Would the underage cost, Cu, decrease or increase? Provide your answer with a justification.
  3. Would the optimal order quantity decrease or increase? Provide your answer with a justification.

• The Fashion Store sells fashion items. The demand for one selling season is random and unknown. The store must order inventory many months in advance of the selling season to get a good price on the items and to ensure they arrive right before the selling season. Each unit costs Fashion 0. These units are sold to customers at a price of $250 per unit. Items not sold during the season can be sold to the outlet store at $80 per unit.
  1. Based on the information above, is the optimal service level more or less than 50%? Provide your answer with a justification.
  2. If the demand of the fashion items follows a normal distribution, then should the optimal order quantity be more or less than the mean of the demand of the fashion items? Provide your answer with a justification.