We will analyse the total profit for both the wholesale prices Scenario 1. Whole

Question

We will analyse the total profit for both the wholesale prices

Scenario 1. Wholesale price = $ 20

Retail price, p = 30 + 0.5*20 = $ 40

Demand, D = 120 - 2*40 = 40

Production cost, c = $ 20

Mfr's profit = D*(w-c) = 40*(20-20) = 0

Scenario 2. Wholesale price = $ 30

Retail price, p = 30 + 0.5*30 = $ 45

Demand, D = 120 - 2*45 = 30

Production cost, c = $ 20

Mfr's profit = D*(w-c) = 30*(30-20) = $ 300

We see that mfr's profit is more in case of w = 30. Therefore wholesale price of $ 30 is better for the mfr.

Explanation / Answer

4 points) Consider the following (make-to-order) supply chain. q: Order quantity p: Retail price (There is no salvage cost.) | Supplier Retailer c: Unit cost w: Wholesale price Suppose the supply chain is decentralized, and under the "Revenue Sharing" contract, the retailer shares 1- (where 0 1) fraction of her revenues with the supplier. If the supplier sets w (i.e., sells below cost!!) and the retailer chooses the quantity that maximizes her profit, then: (2 pts) Show that the decentralized supply chain under this revenue sharing contract performs the same as the centralized supply chain. (1 pt) Show that in the decentralized supply chain under the revenue sharing contract the supplier earns 1- fraction and the retailer earns fraction of the total supply chain profits. (1 pt) Suppose in the decentralized supply chain without contract, the supplier's expected profit is s-$6,000 and the retailer's profit is Ta-$12,000. The centralized supply chain has an expected profit of Tc$20,000. Find the range for such that both the retailer's and the supplier's profits are higher under the "Revenue Sharing" contract compared to the simple wholesale price contract. a· b. c.

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