Pricing and Newsvendor Practice Problems Show your work! 1. Study the teaching note on Double Marginalization in the Chapter 4 folder of Module 1 on Blackboard. a. Assume that demand is defined by p = 2,000 - 4q (instead of 1,000 - q) and that the production cost is c = 100. Follow the steps of the teaching note to calculate the profit maximizing price p*, the quantity q*, and the resulting profits of the integrated supply chain. b. Next, consider a decentralized supply chain with a manufacturer selling to a retailer who sells to customers. Follow the steps of the teaching note to calculate the optimal wholesale price w* (i.e., the price at which the manufacturer sells to the retailer), the retail price p*, the order quantity q* and the resulting profits of the retailer, manufacturer and channel. (Recall that the channel profit is the sum of the retailer and manufacturer profits.) c. Which supply chain has the highest profits, a or b? 2. Study the teaching note on the Newsvendor Model in the Chapter 5 folder of Module 1 on Blackboard. a. Suppose that demand is normally distributed with mean 1,000 and standard deviation 180. Suppose that the production cost is $30, the selling price $50 and the salvage value $10. Calculate the optimal order quantity using the Newsvendor model. b. Suppose that demand is uniformly distributed between 5 and 10. (This means that demand = 5, 6, 7, 8, 9 and 10 with equal probability.) Suppose that a manufacturer sells widgets to a retailer who sells them to customers. The manufacturer's production cost is $2, and the wholesale price is $3. (The wholesale price is the price at which the manufacturer sells to the retailer.) The retail price is $4 and the salvage value $1.50. Calculate the quantity of widgets that the retailer would order from the manufacturer if he used the Newsvendor model. What are the retailer, manufacturer and channel profits in this case? c. Assume that the manufacturer of problem b offers the following revenue sharing contract to the retailer: The retailer can order from the manufacturer at the wholesale price of $2 (instead of $3) in exchange for a 25% share of revenues (paid to the manufacturer). Answer the same questions as in b. d. Should the retailer accept this contract? e. Compare your results in b and c to the Video Vault Newsvendor.xlsx file from the Chapter 4 folder of Module 1 on Blackboard. 3. Study the teaching note on Supplier Selection in the Chapter 6 folder of Module 1 on Blackboard. a. Redo the factor-rating analysis of the teaching note using the following data: Quality High Low High Supplier 1 Supplier 2 Supplier 3 Reliability High Very Low Medium Speed Low Very High Medium Innovation Low Medium Very High Flexibility Very Low Medium High Choose your own set of weights and justify your choice. Based on the factor-rating method, which supplier should be selected? Now, consider the following cost structure for the same three suppliers providing two products A and B: Supplier 1 Supplier 2 Supplier 3 Part A Part B Upfront Setup Cost $(5,000) $(1,500) $(2,500) Selling Price $100 $80 Batch Fixed Cost $(500) $(2,500) $(2,000) Forecast (per year) 6,000 5,000 Variable Cost A $6 Variable Cost B $5 $4 $5 Inventory Carrying Interest 30% 30% b. Calculate the EOQ for each supplier and product. c. Redo the supplier selection of the lecture note with the above data. Make a supplier selection based on the lowest annual total cost, and give the cost of the solution. Include a detailed cost breakdown