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Borders prices the book to its customers

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Reference no: EM1382730

Question #1 [Basic Newsboy] A publisher sells books to Borders at $12 each. Borders prices the book to its customers at $24 and expects demand over the next two months to be normally distributed, with a mean of 20,000 and a standard deviation of 5,000. Borders places a single order with the publisher for delivery at the beginning of the two-month period. Currently, Borders discounts any unsold books at the end of two months down to $3, and any books that did not sell at full price sell at this price. a. Borders will consider this book to be a bestseller if it sells 25,000 copies. What is the probability that it is a bestseller? b. What order quantity maximizes Borders' expected profit? c. How much is this expected profit? d. What is the corresponding fill rate? e. How many books does Borders expect to sell at a discount? f. The marginal production cost for the publisher is $1 per book. How much profit does the publisher make given Borders' actions? Question #2 [Refund Contract] A movie studio sells the latest movie on DVD to Blockbuster at $10 per DVD. The marginal production cost for the movie studio is $1 per DVD. Blockbuster prices each DVD at $20 to its customers. DVD s are kept on the regular rack for a one-month period, after which they are discounted down to $5, Blockbuster places a single order for DVDs. Their current forecast is that sales will be normally distributed, with a mean of 10,000 and a standard deviation of 5,000. a. How many DVDs should Blockbuster order? b. What is its expected profit? c. What is the profit that the studio makes given Blockbuster's actions? A plan under discussion is for the studio to refund Blockbuster $4 per DVD that does not sell during the one-month period. As before, Blockbuster will discount them to $5 and sell any that remain. d. Under this plan, how many DVDs should Blockbuster order? e. What is the expected profit for Blockbuster? f. What is the expected profit for the studio? g. What should the studio do?

Reference no: EM1382730

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