A newsboy problem with an emergency order under a general backorder rate function

In this paper, a generalization is presented of the newsboy problem where an emergency lot can be ordered to provide for a certain fraction of shortage. This fraction is described by a general backorder rate function which is non-increasing with respect to the unsatisfied demand. An exponential distribution for the demand during the selling season is assumed. An expression is obtained in a closed form for the optimal lot size and the maximum expected profit. A general sensitivity analysis of the optimal policy with respect to the backorder rate function and the parameters of the inventory system is developed. When the backorder rate function is described by some particular functions, its behavior is analyzed with respect to changes in the parameters. To illustrate the theoretical results, some numerical examples are also given.

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