Benetton has entered into a quantity flexibility contract for a seasonal product with its retailer. If the retailer orders O units, Benetton is willing to provide up to another 35 percent if needed. Benetton’s production cost is $24 and they charge the retailer a wholesale price of $40. The retailer prices to customers at $55 per unit. Any unsold units can be sold at a salvage value of $25 by the retailer. Benetton can only salvage $10 per unit for its left over inventory. The retailer forecasts demand to be normally distributed with a mean of 5000 and a standard deviation of 1800.

a- How many units O, should the retailer order?

b- What is the expected quantity purchased by the retailer? (recall that the retailer can increase the order by up to 35 percent after observing demand)

c- What is the expected quantity sold by the retailer?

d- What is the expected overstock at the retailer?

e- What is the expected profit for the retailer?

f- What is the expected profit for Benetton?