Suppose you are positioning "meals ready to eat" (MREs)for humanitarian aid in an area prone to experiencing hurricanes.If a hurricane occurs,the number of MREs that might be demanded by affected residents of the area is normally distributed with a mean of 10,000 and a standard deviation of 500.MREs cost $1 each to purchase and store.In the event of a hurricane,unused MREs are unlikely to be needed again before they spoil,in which case they must be disposed of at a cost of $0.25 per MRE.If during a hurricane there are not enough stored MREs to meet people's needs,then more MREs can be purchased and quickly shipped in to the site at a cost of $8 each.How many MREs should you preposition in anticipation of a hurricane? (Pick the number closest to the correct answer.)
A)11,000
B)10,980
C)10,520
D)10,640

Question

Quizplus · Accepted Answer

The optimal number of MREs to preposition is determined by balancing the cost of overstocking and understocking. Using the newsvendor model, the critical ratio is calculated as 0.97, which corresponds to a z-score of approximately 1.88. Therefore, the optimal order quantity is 10,000 + (1.88 * 500) = 10,940, which is closest to 10,520.

Suppose You Are Positioning "Meals Ready to Eat" (MREs)for Humanitarian