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A movie studio sells the latest movie on DVD to Blockbuster at $11 per DVD. The marginal production cost for the movie studio is $2 per DVD. Blockbuster prices each DVD at $23 to its customers. DVD s are kept on the regular rack for a one-month period, after which they are discounted down to $4. Blockbuster places a single order for DVDs. Their current forecast is that sales will be normally distributed, with a mean of 100,000 and a standard deviation of 40,000.
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?
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