A supplier to a music store buys compact discs at $1 per unitand sells them to the music store at $5 per unit. The music storesells each disc to the end consumer at $10. At the retail price,the market demand distribution is give as follows
Demand | Prob. |
1 | 0.15 |
2 | 0.20 |
3 | 0.35 |
4 | 0.30 |
- With no contract in place, determine how much the music storeshould order to maximize it’s expected profit? (8 points)
- (4 points) What is the total expected profit of the supplychain corresponding to the order quantity calculated from question1? Show the calculations for the expected profit at the music storeand supplier.
- Now, the supplier to the music store agrees to buyback discsthat have not sold at $2.50 per disc. What is the total expectedprofit of the supply chain if the music store orders 4 CDs? Showthe calculations for the expected profit at the music store andsupplier. (7 points)
- The supplier agrees to sell each disc to the music store at $1instead of $5. The music store agrees to share 35 % of the revenuefrom each disc sold. What is the total expected profit of thesupply chain if the music store orders 2 CDs? Show the calculationsfor the expected profit at the music store and supplier. (6points)
