We claimed that the critical fractile formula, equation (13.8), is appropriate because the optimal Q should satisfy c under (1- F(Q)) = c over F(Q), that is, the cost of understocking times the...

We claimed that the critical fractile formula, equation (13.8), is appropriate because the optimal Q should satisfy c_under
(1- F(Q)) = c_over
F(Q), that is, the cost of understocking times the probability of understocking should equal the cost of overstocking times the probability of overstocking. Assume that Q satisfies this equation [which is equivalent to equation (13.8)]. Use a probability argument to show why Q -1 and Q+1 are both worse than Q in terms of expected cost.

equation (13.8)