1. A publisher sells books to Barnes & Noble at $40 each. The marginal productio
ID: 2820954 • Letter: 1
Question
1. A publisher sells books to Barnes & Noble at $40 each. The marginal production cost for the publisher is $20 per book. Barnes & Noble prices the book to its customers at $50 and expects demand over the next two months to have the following scenarios:
Quantity Probability
2000 3%
2100 8%
2200 15%
2300 30%
2400 17%
2500. 12%
2600 10%
2700 5%
Barnes & Noble places a single order with the publisher for delivery at the beginning of the two month period. Currently, Barnes & Noble discounts any unsold books at the end of two months down to $10, and any books that did not sell at full price sell at this price.
a). How many books should Barnes & Noble order? What is its expected profit? What is the publisher’s expected profit?
b). If the publisher and Barnes & Noble were integrated, what is the system optimal production quantity and expected profit under global optimization?
c). Find a coordinating buyback contract such that the sum of publisher’s and Barnes & Noble’s expected profit equal to your answer in b). Please show how the coordinating buyback contract allocates the profit between the publisher and Barnes & Noble.
Explanation / Answer
Answer a:
Barnes & Noble should order 2351 number of books.
The profit, Barnes & Noble earns per book is = 50 - 40 = 10
Totalexpected profit = 2351 * 10 = 23510
The profit, publisher earns per book is = 40 - 20 = 20
Total expected profit = 2351 * 20 = 47020
Answer b:
If the publisher and Barnes&Noble were integrated, the system optimal production quantity would be = 2351.
The expected profit under global optimization = 50 - 20 = 30 per book
Total profit = 2351 * 30 = 70530
Quantity Probability Expected quantity to be purchased (Quantity x probability) 2000 3% 2000*0.30 = 60 2100 8% 168 2200 15% 330 2300 30% 690 2400 17% 408 2500 12% 300 2600 10% 260 2700 5% 135 Total 2351Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.