Question
A new edition of a very popular textbook will be published a year from now. The publisher currently has 2,000 copies on hand and is
A new edition of a very popular textbook will be published a year from now. The publisher currently has 2,000 copies on hand and is deciding whether to do another printing before the new edition comes out. The publisher estimates that demand for the book during the next year is governed by the probability distribution in the file P15_31.xlsx. A production run incurs a fixed cost of $10,000 plus a variable cost of $15 per book printed. Books are sold for $120 per book. Any demand that cannot be met incurs a penalty cost of $20 per book, due to loss of goodwill. Up to 500 of any leftover books can be sold to Barnes & Noble for $35 per book. The publisher is interested in maximizing expected profit. The following print-run sizes are under consideration: 0 (no production run) to 10,000 in increments of 1000.
A. What decision would you recommend? Use simulation with 1000 replications. Round your answer to the nearest whole number, if necessary.
B. What is the optimal print size?
C. For your optimal decision, the publisher can be 90% certain that the actual profit associated with remaining sales of the current edition will be between what two values? Round your answers to the nearest whole dollar, if necessary. Lower value is? Upper value is?
Demand | Probability | |
3000 | 0.40 | |
4000 | 0.20 | |
6000 | 0.10 | |
8000 | 0.20 | |
10000 | 0.10 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started