Question: Nike has signed a quantity flexibility contract with a retailer for a seasonal product. If the retailer orders ( O ) units, Nike

Nike has signed a quantity flexibility contract with a retailer for a seasonal product. If the retailer orders \( O \) units, Nike is willing to provide up to an additional 35 percent if necessary. Nike's production cost is \(\$ 20\), and it charges the retailer a wholesale price of \(\$ 36\). The retailer sets the price for customers at \(\$ 55\) per unit. Any unsold units can be sold by the retail at a salvage value of \(\$ 25\). Nike can only recover \(\$ 10\) per unit for its leftover inventory. The retailer forecasts demand to be normally distributed with a mean of 4,000 and a standard deviation 1,600.
a. How many units \( O \) should the retailer order?
b. What is the expected quantity purchased by the retailer (considering the retailer can increase the order by up to \(35\%\) after observing demand)?
c. What is the expected quantity sold by the retailer?
d. What is the retailer's expected excess inventory?
e. What is the retailer's expected profit?
f. What is Nike's expected profit?
Nike has signed a quantity flexibility contract

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