MIT15_762JS11_assn02

MIT15_762JS11_assn02 - Problem set#2 Due Session 10 Problem...

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Problem set #2 Due Session 10 Problem 1 Consider the following demand scenario: Quantity Probability 2000 3% 2100 8% 2200 15% 2300 30% 2400 17% 2500 12% 2600 10% 2700 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. a) What is the system optimal production quantity and expected profit under global optimization? 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? c) Suppose the manufacturer is make-to-stock. (i.e., the manufacturer must decide
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MIT15_762JS11_assn02 - Problem set#2 Due Session 10 Problem...

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