Dan should order to maximize his expected profit

Assignment Help Operation Management

Reference no: EM132157640

Dan’s Independent Book Store is trying to decide on how many copies of a book to purchase at the start of the upcoming selling season. The publisher produces the book at the cost of $16 per unit and sells it to Dan at $20. The book retails at $28. Dan will dispose of all of the unsold copies of the book at 50% off the retail price, at the end of the season. Dan estimates that demand for this book during the season is Normal with a mean of 1000 and a standard deviation of 250.

a. What is the quantity that Dan should order to maximize his expected profit?

b. Imagine the integrated supply chain where the publisher and Dan make decisions as if they are in a single firm. What is the quantity that the integrated firm should order to maximize their expected profit?

c. The optimal order quantity in part b can be considered as the first-best solution for the supply chain. However, Dan found the integration with the publisher is not possible due to other financial issues. Alternatively, Dan is thinking of offering the following scheme to the publisher. At the end of the season, the publisher will buy back unsold copies at a pre-determined price of $r. How should Dan set the return price $r so that the optimal order quantity under this scheme is equal to the first-best solution in part b?

Reference no: EM132157640

Questions Cloud

Estimate the construction costs to the best of your ability : Estimate the construction costs to the best of your ability, with payments made at monthly interviews during the various phases of the programme

What is meant by marketing research : You have been hired by a firm making bar soap. They want to determine the market for soap made organically from natural ingredients.

Regression equation from the previous question : Consider the regression equation from the previous question, that estimated the relationship between blood alcohol content (y) and number of beers consumed

What will be the waiting time if another mechanic is added : What will be the waiting time if another mechanic is added? What is the utilization rate for this service system?

Dan should order to maximize his expected profit : What is the quantity that Dan should order to maximize his expected profit?

Binomial probability distributions : For binomial probability distributions, is there a fast way to find the probability of x being in a range? ex., if i do 30 trials

How has the marketer positioned that brand : Discuss the associations that the marketer has created with that brand. What are the points of parity and the points of difference of the brand?

Percent confidence interval for the proportion : Determine a 90 percent confidence interval for the proportion of all packages that contain a substantial number of broken cookies.

Corporate governance in improving firm performance : What is the role of effective corporate governance in improving a firm’s performance?

User Account

All Pages