Reference no: EM13876862

1. Store A has signed a revenue-sharing contract with a movie studio for DVDs. Each DVD costs the studio $2 to produce, and will be sold to Store A for $5. Store A in turn prices a DVD at $15 and forecasts demand to be normally distributed with mean 5,000 and standard deviation (std) of 2,000. Store A will share 35% of the revenue with the studio, keeping 65% for itself.

(a) How many DVDs should Store A order?

(b) What is the profit that Store A expects to make?

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

2. A publisher sells books to Borders at $12 each. The marginal production cost for the publisher is $1 per book. Borders prices the book to its customers at $24 and expects demand to be normally distributed with mean 20,000 and std of 5,000. Borders places a single order with the publisher for delivery at the beginning of the season. Currently, Borders discounts any unsold books at the end of the season down to $3.

(a) How many books should Borders order? What is its expected profit? How many books does it expect to sell at a discount?

(b) What is the profit that the publisher makes given Border’s actions?

(c) If the publisher buys back any unsold books from Borders at a price of $5 per book, and sells them at the discount price of $3. Under this arrangement, how many books will Border order? What is the expected profit for Borders? How many books are expected to be returned to the publisher? What is the expected profit for the publisher? What should the publisher do? (Hint: you need to add publisher’s profit in the simulation spreadsheet)

3. A manufacturer decides to ration a total supply of 100,000 units of its most popular toy to its retailers. The toy is sold at a margin of $4 in the discount retail channel, and at a margin of $6 in the high-service channel. The manufacturer has forecasted that the demand for the toy at the high-service channel is normally distributed with mean 40,000 and std 15,000. How many toys should the manufacturer ration to high-service channel?

4. A department store has purchased 5,000 swimsuits to be sold during the summer. The season lasts three months and the store manager forecasts that customers buying early in the season are likely to be less price-sensitive and those buying later in the season are likely to be more price-sensitive. The demand curves in each of the three months are forecasted to be:   d1 = 2,000 – 10 p1 d2 = 2,000 – 20 p2 d3 = 2,000 – 30 p3

(a) If the store is to charge a fixed price over the entire season, what should it be? What is the resulting revenue?

(b) If the store wants to vary prices by month, what should they be? How does this affect revenue compared to (a)?

5. An airline serving Denver's Stapleton Airport and Steamboat Springs, Colorado is considering overbooking its flights to avoid flying with empty seats.  During the past month, the no-show experience has been:  

# of No-show customers 0 1 2 3 4  

Probability 0.1 0.25 0.2 0.35 0.1  

A round-trip ticket sells for $180. If the reservation cannot be honored, the airline will issue a voucher of $150 to the customer.  How many reservations should the airline accept, if the plane has 100 seats?