Assignment task:
A producer sells a certain type of LED lights to LPS, a local hardware store, at $12 each. The marginal production cost for the producer is $1 per item. LPS prices the lights at $24 and expects demand to be normally distributed with a mean of 20,000 and a standard deviation of 5,000. LPS places a single order with the producer. Currently, LPS discounts any unsold lights at the end of two months down to $3, and any lights that did not sell at full price sell at this price. A plan under discussion is that the producer buys back any number of unsold lights for $8 per item.
- Under this plan how many items will LPS order?
- What is the expected profit for LPS?
- How many lights are expected to be unsold?
- What is the expected under stock?
- What is the expected profit for the producer?
- What is the supply chain's profit?
- What should the producer do?