Assignment 4

Assignment 4
Due date: June 6, 2019
Note: Each student must hand in this assignment individually. The Excel output
should be enclosed. No late homework will be accepted.
1. A movie studio sells the latest movie on DVD to VideosRUs at $12 per DVD.
The marginal production cost for the movie studio is $1 per DVD. VideosRUs
prices each DVD at $24.50 to its customers. DVDs are kept on the regular rack
for a one month period after which they are discounted down to $5.50.
VideosRUs places a single order for DVDs. Their current forecast is that sales
will be normally distributed with a mean of 12,000 and a standard deviation of
4,500.
a、 How many DVDs should VideosRUs order? What is their expected
profit? How many DVDs do they expect to sell at a discount?
b、 What is the profit that the studio makes given VideosRUs' actions?
c、 A plan under discussion is for the studio to refund VideosRUs $4 per
DVD that does not sell during the onemonth period. As before
VideosRUs will discount them to $4.99 and sell any that remain. Under
this plan how many DVDs will VideosRUS order? What is the expected
profit for VideosRUsr? How many DVDs are expected to be unsold at
the end of the month? What is the expected profit for the studio? What
should the studio do?
2. Topgun Records and movie studios have decided to sign a revenue sharing
contract for CDs. Each CD costs the studio $3 to produce. The CD will be
sold to Topgun for $4. Topgun in turn prices a CD at $20 and forecasts
demand to be nor mally distributed with a mean of 6,000 and a standard
devia tion of 2,200. Topgun will share 35 percent of the revenue with the
studio keeping 65 percent for itself. Any unsold CD 's are discounted to $1 and
all sell at this price. Money made from discounted CDs is kept by Topgun.
a、 How many CDs should Topgun order?
b、 How many CDs does Topgun expect to sell at a discount?
c、 What is the profit that Topgun expects to make?
d、 What is the profit that the studio expects to make?
e、 Repeat parts (a)(d) if the studio sells the CD for $2 (instead of $3) but
1
gets 43 percent of revenue.
3. Benetton has entered into a quantity flexibility contract for a seasonal product
with its retailer. If the retailer orders O units, Benetton is willing to provide up
to another 35 percent if needed. Benetton's production cost is $24 and they
charge the retailer a wholesale price of $40. The retailer prices to customers at
$55 per unit. Any unsold units can be sold at a salvage value of $25 by the
retailer. Benetton can only salvage $10 per unit for its left over inventory. The
retailer fore casts demand to be normally distributed with a mean of 5,000
and a standard deviation of 1,800
a、 How many units O should the retailer order?
b、 What is the expected quantity purchased by the retailer (recall that the
retailer can increase the order by up to 35 percent after observing
demand)?
c、 What is the expected quantity sold by the retailer?
d、 What is the expected overstock at the retailer?
e、 What is the expected profit for the retailer?
f、 What is the expected profit for Benetton?
4. A small warehouse has 100,000 square feet of capacity. The manager at the
warehouse is in the process of signing contracts for storage space with
customers. The contract has an upfront monthly fee of $200 per customer
and then a fee of $3 per square foot based on actual usage. The warehouse
guarantees the contracted amount even if it has to arrange for extra space
at a price of $6 per square foot. The manager believes that customers are
unlikely to use the full contracted amount at all times. Thus, he is thinking
of signing contracts that exceed 100,000 square feet. He forecasts that
unused space will be normally distributed, with a mean of 20,000 square
feet and a standard deviation of 10,000 square feet. What is the total size
of the contracts he should sign? If he forecasts that unused space will be
normally distributed with a mean of 15 percent of the contracted amount
and a coefficient of variation of 0.6, what is the total space that he should
sign contracts for?
5. NatBike, a bicycle manufacturer, has identified two customer segments,

one that prefers a customized bicycle and is willing to pay a higher price
and another that is willing to take a standardized bicycle but is more price
sensitive. Assume that the cost of manufacturing either bicycle is $300.
2
Demand from the customized segment has a demand curve of d1 = 20,000
10p1 and demand from the pricesensitive standard segment is d2 =
40,000 30p2. What price should NatBike charge each segment if there is
no capacity constraint? What price should NatBike charge each segment if
the total available capacity is 20,000 bicycles? What is the total profit in
each case?

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Assignment 4

Due date: June 6, 2019

5. NatBike, a bicycle manufacturer, has identified two customer segments,

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