Abstract
The classic single-period inventory problem, colloquially referred lo in the literature as the newsboy problem, is examined assuming the objective of maximizing a mean-variance utility function. This objective function is intended to reflect different attitudes of decision makers towards risk. The optimal order quantity is derived and it is shown that under risk aversion the amount that is ordered is less than the amount ordered under risk neutrality. On the other hand, it is shown that the optimal order quantity when the decision maker is a risk lover is greater than it would be were he risk neutral. The problem is also considered when the ordering cost includes a fixed cost component in addition to the purely variable quantity purchase cost. For this case, an optimal (s, Q) policy is derived (where s is the reorder point and Q is the order quantity).
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