What buy-back price should the wholesaler offer

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Question: The Johnson Bookstore stocks business newspapers for its customers. It purchases the newspapers from a wholesaler and pays $0.50 per copy, and sells newspapers to customers at $1.00 a copy. Demand for newspapers is normally distributed with mean 50 and standard deviation 9. The wholesaler gets the newspapers from the publisher at a cost of $0.30 per copy. The wholesaler considers offering to buy back any unsold newspapers from the bookstore at the end of the day.

a. What buy-back price should the wholesaler offer to induce the bookstore to buy the quantity that maximizes the combined profit of the wholesaler and the bookstore?

b. What is the optimal quantity for the bookstore with this buy-back price?

Reference no: EM133594529

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