Demand and Costs

Underage and Overage

Costs turn mismatch units into expected cost.

highlighted = computed this step

Underage cost

Underage cost is 6 per missing unit.

cu=6c_u=6
Candidate tableThe table recomputes expected mismatch and expected cost for each order quantity.one-period expected costchosen q=2 by smaller-order tie ruleqE overE underE costcost bar101621/41/42chosen3102cost tie

Overage cost

Overage cost is 2 per leftover unit.

co=2c_o=2
Candidate tableThe table recomputes expected mismatch and expected cost for each order quantity.one-period expected costchosen q=2 by smaller-order tie ruleqE overE underE costcost bar101621/41/42chosen3102cost tie

Candidate quantities

The candidate order quantities are one, two, and three units.

q∈{1,2,3}q\in\{1,2,3\}
Candidate tableThe table recomputes expected mismatch and expected cost for each order quantity.one-period expected costchosen q=2 by smaller-order tie ruleqE overE underE costcost bar101621/41/42chosen3102cost tie

Cost meaning

Expected cost combines expected leftover units and expected missing units.

expected cost combines overage and underage\text{expected cost combines overage and underage}
Candidate tableThe table recomputes expected mismatch and expected cost for each order quantity.one-period expected costchosen q=2 by smaller-order tie ruleqE overE underE costcost bar101621/41/42chosen3102cost tie