A movie studio sells a movie on DVD to Videos RUs at S10 per DVD. the marginal production cost for the movie studio is SI per DVD.
Videos RUs prices each DVD at S 19.99 to its customers. DVDs are kept on a regular rack for a one-month period, after which any unsold DVD is sold back to the movie studio at a price of $4.99 (per DVD). the studio in turn, can sell the returned DVDs for a salvage value of $2.5 (per DVD).
Videos RUs places a single order for DVDs. Its current forecast is that sales will be normally distributed with a mean of 10,000 and a standard deviation of 5.000.
How many DVDs should Videos RUs order?
What is its expected profit? What should be the target CSL for Videos RUs?
What is the profit that the studio makes given Videos RUs' actions?