9) Consider the following demand scenario: Quantity Probability 2,000 3% 2,100 8
ID: 2747944 • Letter: 9
Question
9) Consider the following demand scenario: Quantity Probability 2,000 3% 2,100 8% 2,200 15% 2,300 30% 2,400 17% 2,500 12% 2,600 10% 2,700 5% Suppose the manufacturer produces at a cost of $20/unit. The distributor sells to end customers for $50/unit during season and unsold units are sold for $10/unit after season. b) Suppose the manufacturer is make-to-order (i.e., the distributor must order before it receives demand from end customers). (i) Suppose the manufacturer sells to the distributor at $40/unit, how much should the distributor order? What is the expected profit for the manufacturer? What is the expected profit for distributor? (ii) Find an option contract such that both the manufacturer and distributor enjoy a higher expected profit than (b)(i). What is the expected profit for the manufacturer and the distributor?
Explanation / Answer
There is lack of clarity on the question you posted. The question can be best explained below
if he sells at $ 50 then the manufacturer makes 2351 units , his profits will be = 2351 units * Profit $30 per units = $70530
If he sells at $40 per unit , the profit will be $ 20 per units an dhe can earn a total profit of = 2351*$20 = $47020
Quantity 2000 2100 2200 2300 2400 2500 2600 2700 Probability 0.03 0.08 0.15 0.3 0.17 0.12 0.1 0.05 Expected Demand 2351 Calculation is given below Expected demand = 2000*0.03+2100*0.08+2200*0.15+2300*0.3+2400*0.17+2500*0.12+2600*0.1+2700*0.05 = 2351Related Questions
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