A movie studio sells the latest movie on DVD to VideoCanada for $10 per DVD. The
ID: 338235 • Letter: A
Question
A movie studio sells the latest movie on DVD to VideoCanada for $10 per DVD. The marginal production cost for the movie studio is $2 per DVD. VideoCanada prices each DVD at $20 to its customers. Their current forecast is that sales will be normally distributed with a mean of 1000 and a standard deviation of 200. To share risk associated with demand uncertainty, the movie studio is willing to sign a buyback contract, according to which it will buy any unsold DVDs for $4. If VideoCanada's profit is expected to be $8,787, what is supply ch ain profit2Explanation / Answer
A movie studio sells the latest movie on DVD to VideoCanada for $10 per DVD. The marginal production cost for the movie studio is $2 per DVD. VideoCanada prices each DVD at $20 to its customers. Their current forecast is that sales will be normally distributed with a mean of 1000 and a standard deviation of 200. To share risk associated with demand uncertainty, the movie studio is willing to sign a buyback contract, according to which it will buy any unsold DVDs for $4. If VideoCanada's profit is expected to be $8,787, what is supply ch ain profit2
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