of a book to purchase at the start of the upcoming selling season. The book retails for $28.00. The publisher sells the book to Dan at $20.00. Dan can dispose of all of the unsold copies of the book at 50% off the retail price, at the end of the season. Dan estimates that demand for this book during the season is Normal with a mean of 1000 and a standard deviation of 250. The publisher offers the following scheme to Dan. At the end of the season, the publisher will buy back unsold copies at
Dan’s Independent Book Store is trying to decide on how many copies of a book to purchase at the start of the upcoming selling season. The book retails for $28.00. The publisher sells the book to Dan at $20.00. Dan can dispose of all of the unsold copies of the book at 50% off the retail price, at the end of the season. Dan estimates that demand for this book during the season is Normal with a mean of 1000 and a standard deviation of 250. The publisher offers the following scheme to Dan. At the end of the season, the publisher will buy back unsold copies at a pre-determined price of $17.00. However, Dan would have to bear the costs of shipping unsold copies back to the publisher at $1.00 per copy. Everything else remains the same.
Question 1: What is the quantity that Dan should order under this new offer to maximize his expected profit?
Question 2: What will be the difference in expected profit if Dan takes the publisher’s buyback offer? (Expected profit with the buy-back offer - Expected profit without the buy-back)
Question 3: What will be the difference in mismatch cost if Dan takes the publisher’s buyback offer? (We defined mismatch cost as a part of View 3 on Expected profit).
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
