EconomicsConsider a supplier that manufactures a product at$2 per unit and sells them to retailers at $7 perunit. The retailer sells each product to the endconsumer at $10. At this retail price, marketdemand is normally distributed, with a mean of1,000 and a standard deviation of 300. Thesupplier agrees to buy back unsold products for $beven though any leftover product at the end ofsale period are worthless.a) What is the retailer's order quantity under localoptimization when b=0?b) What is the optimal order quantity under globaloptimization? Round up to the nearest integer.Derive the optimal value of b.c) With the optimized value of b in the buybackclause, how many discs should an independentretailer order? Round up your solution to thenearest integer.d) What is the expected overstocking given theoptimized value of $b? What is the expectedunderstocking given the optimized value of $b?What is retailers' expected profit? What is themanufacturer's expected profit?

Local optimization refers to the technique of finding the most or minimal of a function within a…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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