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  3. a supplier to a music store buys compact discs at

A supplier to a music store buys compact discs at $1 per unit and sells them...

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Question

Advance Math

A supplier to a music store buys compact discs at $1 per unitand sells them to the music store at $5 per unit. The music storesells each disc to the end consumer at $10. At the retail price,the market demand distribution is give as follows

Demand

Prob.

1

0.15

2

0.20

3

0.35

4

0.30

  1. With no contract in place, determine how much the music storeshould order to maximize it’s expected profit? (8 points)

  1. (4 points) What is the total expected profit of the supplychain corresponding to the order quantity calculated from question1? Show the calculations for the expected profit at the music storeand supplier.

  1. Now, the supplier to the music store agrees to buyback discsthat have not sold at $2.50 per disc. What is the total expectedprofit of the supply chain if the music store orders 4 CDs? Showthe calculations for the expected profit at the music store andsupplier. (7 points)

  1. The supplier agrees to sell each disc to the music store at $1instead of $5. The music store agrees to share 35 % of the revenuefrom each disc sold. What is the total expected profit of thesupply chain if the music store orders 2 CDs? Show the calculationsfor the expected profit at the music store and supplier. (6points)

Answer & Explanation Solved by verified expert
3.7 Ratings (547 Votes)
1For supplier Cost 1Sell Price 5For music store Cost 5Sell Price 10For the music store the profit is given by 5per unit of CD SoldThe following table demonstrates the profit obtainedCDs OrderedCDs SoldProfitProbability1151210015221002 035 03    See Answer
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