Question
GoT Records and Movie Studios have decided to sign a revenue sharing contract for CDs. Each CD costs the studio $2 to produce. The CD
GoT Records and Movie Studios have decided to sign a revenue sharing contract for CDs. Each CD costs the studio $2 to produce. The CD will be sold to GoT for $3. GoT in turn prices a CD at $15 and forecasts demand to be normally distributed with a mean of 5,000 and a standard deviation of 2,000. GoT will share 35 percent of the revenue with the studio keeping 65 percent for itself. Any unsold CD's are discounted to $1 and all sell at this price. Money made from discounted CDs is kept by GoT.
If the studio had been acquired by GoT, what would be the profit of this new setting assuming the cost of production and retail prices remain the same as before?
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