Tom owns an independent bookstore located in Philadelphia. Tom has to decide on the best order quantity for a new self-help book that is to be released soon. The books will each cost Tom $20 but will retail for $30. At the end of the season, Tom can dispose of all of the unsold copies of the book at $5 each. Tom estimates that demand can be represented by a normal distribution with mean 240 and a standard deviation of 100. The publisher’s cost per book is $7.
a. What order quantity maximizes Tom’s expected profit?
b. What is Tom’s expected profit?
c. What is the resulting profit for the publisher?
d. What quantity will maximize the supply chain’s profit?
e. How much is the total supply chain profit?
f. What quantity should Tom order if he wishes to maximize his expected profit?
g. What is the resulting profit for the publisher?
h. What is the total profit for the supply chain?
i. Compute the best buy-back price.
j. Compute the resulting profit for Tom under the best buy-back price.
k. Compute the resulting profit for the publisher under the best buy-back price.
l. What is the total profit for the supply chain now?