The Newsvendor Game

Make ordering decisions under demand uncertainty across 10 different product scenarios. Learn the critical ratio and how to balance overstocking against understocking costs.

How It Works

  • You will play 10 rounds, each featuring a different product with unique economics.
  • Each round, you decide how many units to order before knowing the actual demand.
  • After ordering, demand is randomly revealed and your profit is calculated.
  • Unsold units are salvaged at a lower value; unmet demand is lost revenue.
  • Each round is scored 0–10 based on how close your profit is to the optimal decision.
  • Total score out of 100 points determines your final grade.
Round 1 of 10
Score: 0/100  |  Profit: $0

Selling Price
Unit Cost
Salvage Value

Choose Your Order Quantity

#ProductYour ProfitOptimal ProfitScore

The Critical Ratio

The newsvendor model finds the optimal order quantity by balancing the cost of ordering too much (overage) against ordering too little (underage).

Critical Ratio = C_u / (C_u + C_o), where C_u = Price − Cost (underage cost per unit) and C_o = Cost − Salvage (overage cost per unit).

The optimal order quantity Q* is set so that P(Demand ≤ Q*) = Critical Ratio. When the critical ratio is high (profit margins are large relative to losses), you should order more aggressively. When it is low, order conservatively.

This framework applies broadly: from fashion retail to perishable food, any situation where you must commit to inventory before uncertain demand is realized.