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Digital Devices Incorporated (DDI) is in an intensely competitive market for high-speed signal processing chips. They have perennially been an industry leader, but now find
Digital Devices Incorporated (DDI) is in an intensely competitive market for high-speed signal processing chips. They have perennially been an industry leader, but now find that within ten weeks of the release of a new chip, a swarm of copycat competitors rush in and kill any further profitability for their product. Thus DDI basically launches a product that has an expected economic life of ten weeks. DDI is about to launch a new version of its Fruitfly TM signal-processing chip. They estimate that the demand until the swarm arrives has a normal distribution with a mean of 150,000 and a standard deviation of 45,000. The margin on the chip (price minus variable cost) is expected to be about $100 for the first ten weeks; after which the market completely dries up for DDI's product. (The price charged is $150 and the cost is $50.) They must commit now with their foundry supplier as to how many Fruitfly TM chips to produce. What number should they choose
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