The IMU bookstore needs your help to determine the number of Cachon and Terwiesc

Question

The IMU bookstore needs your help to determine the number of Cachon and Terwiesch’s book (our textbook) to purchase before the 2018 summer session opens. The book retails at $100. McGraw Hill sells the book to IMU for $75. IMU will dispose of all the unsold copies of the book at 85% off the retail price at the end of the summer session. IMU estimates that demand for this book is Poisson with mean of 9 units. As an incentive for IMU to order more of Cachon and Terwiesch’s book, McGraw Hill is offering the following deal. At the end of the summer session, McGraw Hill will buy back unsold copies of the book for $35. However, IMU would have to bear the cost of shipping unsold copies back to McGraw Hill at $2.00 per copy. Find the expected profit maximizing answers to the following questions.

Suppose IMU orders 6 books, what is IMU’s approximate expected sales if McGraw Hill offers the buyback incentive?

a. 5

b. 6

c. 7

d. 8

e. 9

Explanation / Answer

Answer to the question is B = 6

since mean for the sales is 9 so the average sales for the IMU will be atleast 9, however in the question, since the order is done for 6 books only, the average cannot go less than 6 and hence the sales will be for 6 books

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