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Mathematical Problems in Engineering
Volume 2015, Article ID 296132, 10 pages
http://dx.doi.org/10.1155/2015/296132
Research Article

Managing the Newsvendor Modeled Product System with Random Capacity and Capacity-Dependent Price

1Glorious Sun School of Business and Management, Donghua University, 1882 West Yan’an Road, Shanghai 200051, China
2School of Business Administration and Center for Industrial Economy, Zhongnan University of Economics and Law, Wuhan 430073, China
3China Foreign Exchange Trade System, Building 30, 1387 Zhangdong Road, Shanghai 201203, China

Received 25 September 2014; Revised 12 December 2014; Accepted 13 December 2014

Academic Editor: Tsan-Ming Choi

Copyright © 2015 Qingying Li et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We consider a newsvendor modeled product system, where the firm provides products to the market. The supply capacity of the product is random, so the firm receives either the amount of order quantity or the realized capacity, whichever is smaller. The market price is capacity dependent. We consider two types of production cost structures: the procurement case and the in-house production case. The firm pays for the received quantity in the former case and for the ordered quantity in the latter case. We obtain the optimal order quantities for both cases. Comparing with the traditional newsvendor model, we find that the optimal order quantity in both the procurement case and the in-house production case are no greater than that in the traditional newsvendor model with a fixed selling price. We also find that the optimal order quantity for the procurement case is greater than that for the in-house production case. Numerical study is conducted to investigate the sensitivity of the optimal solution versus the distribution of the random capacity/demand.