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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Economics
Consider a supplier that manufactures a product at
$2 per unit and sells them to retailers at $7 per
unit. The retailer sells each product to the end
consumer at $10. At this retail price, market
demand is normally distributed, with a mean of
1,000 and a standard deviation of 300. The
supplier agrees to buy back unsold products for $b
even though any leftover product at the end of
sale period are worthless.
a) What is the retailer's order quantity under local
optimization when b=0?
b) What is the optimal order quantity under global
optimization? Round up to the nearest integer.
Derive the optimal value of b.
c) With the optimized value of b in the buyback
clause, how many discs should an independent
retailer order? Round up your solution to the
nearest integer.
d) What is the expected overstocking given the
optimized value of $b? What is the expected
understocking given the optimized value of $b?
What is retailers' expected profit? What is the
manufacturer's expected profit?
Transcribed Image Text:Economics Consider a supplier that manufactures a product at $2 per unit and sells them to retailers at $7 per unit. The retailer sells each product to the end consumer at $10. At this retail price, market demand is normally distributed, with a mean of 1,000 and a standard deviation of 300. The supplier agrees to buy back unsold products for $b even though any leftover product at the end of sale period are worthless. a) What is the retailer's order quantity under local optimization when b=0? b) What is the optimal order quantity under global optimization? Round up to the nearest integer. Derive the optimal value of b. c) With the optimized value of b in the buyback clause, how many discs should an independent retailer order? Round up your solution to the nearest integer. d) What is the expected overstocking given the optimized value of $b? What is the expected understocking given the optimized value of $b? What is retailers' expected profit? What is the manufacturer's expected profit?
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