Decided to sign revenue-sharing contract for cds

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Reference no: EM132214859

HighKey Records and several movie studios have decided to sign a revenue-sharing contract for CDs. Each CD costs the studio $2 to produce. The CD will be sold to HighKey for $3. HighKey in turn prices a CD at $15 and forecasts demand to be the following:

Quantity Probability

1000 5%

2000 5%

3000 10%

4000 10%

5000 20%

6000 15%

7000 15%

8000 10%

9000 10%

Any unsold CDs are discounted to $1, and all sell at this price. HighKey will share 35% of the revenue with the studio, keeping 65% for itself.

a) How many CDs should HighKey order?

b) How many CDs does HighKey expect to sell at a discount?

c) What is the profit that HighKey expects to make? What is the profit that the studio expects to make?

Reference no: EM132214859

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