Topgun Records and several movie studios have decided to sign a revenue-sharing contract for CDs. Each CD costs the studio $2 to produce. The CD will be sold to Topgun for $3. Topgun, in turn, prices a CD at $15 and forecasts demand to be normally distributed, with a mean of 5,000 and a standard deviation of 2,000. Any unsold CDs are discounted to $1, and all sell at this price. Topgun will share 35 percent of the revenue with the studio, keeping 65 percent for itself.
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 gets 43 percent of revenue.