Avatar DVD is just released. Walmart buys from 20 Century Fox at $10 per copy. The cost for 20 Century Fox to produce the DVD is just $1 per copy. Walmart sells the DVD at $20 per copy. Assume Walmart expects that the total demand is random following the table below. There is no salvage value if the DVD is unsold.

#of rentals Probability

150 0.05

160 0.1

170 0.2

180 0.2

190 0.2

200 0.1

210 0.1

220 0.05

a) How many copies shall Walmart buy from 20 Century Fox?

b) Walmart can return the unsold DVD to 20 Century Fox for $5 per copy. The value of those unsold DVD to Fox is zero. All else equal, how many copies shall Walmart buy now?

c) If 20 Century Fox could sell the DVD to consumers directly at $15 per copy (instead of selling to Walmart at $10 per copy), how many copies would 20 Century Fox produce optimally?