The Newsboy Problem under Alternative Optimization Objectives

Abstract

In the classical "newsboy problem", one determines the optimum order quantity to maximize the expected profit. This paper considers the newsboy problem under two new objectives. The relevance of the first objective-"maximizing expected utility"-is well established in decision theory. This paper develops a group of formulas for handling the partial moments arising from adopting this objective, and these formulas are potentially useful to many other management models involving partial moments. The second objective-"maximizing the probability of achieving a budgeted profit"-is commonly adopted by managers but largely ignored in the literature. The analysis reveals some interesting results for determining the optimum order quantity under this objective.