Suppose that Dr. Su really want to get out of academia for more$$ but driving for Uber may not be ideal for him. He decides tostart a new business and now sells sunglasses to a retailer calledUltimate Vision (UV). UV purchases each one of the pairs ofsunglasses from Dr. Su for $75 and retails them for $115. Dr. Su’ssourcing cost from Alibaba is $35. At the end of the season, UVestimates the salvage value is only about $25 each pair. UVbelieves this season’s demand can be represented by a normaldistribution with a mean of 250 and a standard deviation of125.
The following is the supply chain:
Alibaba --> Dr. Su’ store --> UV retail -->customers
(a) What is UV’s optimal order quantity?
(b) What is Dr. Su’s profit when UV order at optimal?
(c) From a maximize-your-own-profit perspective, should UV orderat a different amount than (a), (state your reason)?
(d) Consider Dr. Su's store and UV retail store as a singleentity, what is the optimal order quantity for the singleentity? Â
(e) What can Dr. Su do to encourage UV order at the amount in(d)?
