7Consider a supply chain with the manufacturer, the retailer and end-users, using a buy-back contract, as below cost-benefit & demand forecasting details:F=$120,000 ; c=$30 ; w=$75 ; b=$50 ; p=$122 ; s=$15;Demand1,8001,9202,0402,160Probability26%27%29%18%Calculate the retailer’s marginal profit, retailer’s marginal loss, manufacturer’s marginal profit.Calculate the expected profit of the retailer and the manufacturer for 4 above-mentioned demand scenarios. Then, conclude on which production quantity Q to maximize manufacturer’s expected profit, which production quantity Q to maximize retailer’s expected profit.

Demand is the desire of an individual ability and willingness to pay for a product. The demand is…

Answered: Consider a supply chain with the…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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Consider a supply chain with the manufacturer, the retailer and end-users, using a buy-back contract, as below cost-benefit & demand forecasting details:

F=$120,000 ; c=$30 ; w=$75 ; b=$50 ; p=$122 ; s=$15;

Demand	1,800	1,920	2,040	2,160
Probability	26%	27%	29%	18%

Calculate the retailer’s marginal profit, retailer’s marginal loss, manufacturer’s marginal profit.
Calculate the expected profit of the retailer and the manufacturer for 4 above-mentioned demand scenarios. Then, conclude on which production quantity Q to maximize manufacturer’s expected profit, which production quantity Q to maximize retailer’s expected profit.

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