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Consider a manufacturing selling dvd's to a retailer for $6 per dvd .The production cost for each dvd is 1$ and the retailer prices each dvd at $10.Retail demand for dvds in normally distributed ,with a mean of 1000 and standard deviation of 300.The manufacturer has offered the retailer a quantity flexibilty contract with ?=?=0.2. The ratailer places an order for 1,000 units.Assume that salvage value is zero for both the retailer and the manufacturer.
a. What is the expected profit for retailer and manufacturer ?
b. How much will profit increase for the retailer if ? increases to 0.5?
c. How much will profit increase for the retailer if ? increases to 0.5(keeping ? at 0.2?
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