In a single-period model, if shortage and excess costs are equal, then the optimum service level is:
A) 0.
B) .33.
C) .50.
D) .67.
E) .75.

Question

Quizplus · Accepted Answer

When shortage and excess costs are equal, the optimal service level is at the point where the holding cost equals the stockout cost. This occurs at a service level of .50, where the expected shortage cost is equal to the expected excess cost. At this point, the total cost is minimized. Therefore, the optimal service level is .50.

In a Single-Period Model, If Shortage and Excess Costs Are