HOT SHOTS GOLF - "Too much Too little"
Suppose you are in charge of determining the level of production for the new "Hot Shots Golf " game of PlayStation. Based on past experience selling this type of games you know that:
? After 5 months a new version will be released.
? Total Demand during these 5 months is normally distributed with mean 40,000 units and standard deviation 10,000 units
? The manufacturing cost of a game is $15 per unit.
? The regular market price of the game is $40 per unit.
? Unsold units at the end of the 5 months can be liquidated on a secondary market for $10 per unit
1. How many units should you produce of this game knowing that the units produced need to last for the next 5 months with no possibility of replenishment during this period?
2. What is the expected profit you expect to generate?
3. The secondary market can only handle 2000 units. If more than 2000 units are unsold then they will need to discarded. Is this a problem? Explain.