QUESTION 8

1. A manufacturer purchases 6000 cases of a certain component for $100 per case from two suppliers: Supplier A and Supplier B.

   Supplier A is currently responsible for 1/2 of the total demand. The two suppliers currently pay $2 per case for transportation and achieve the same average delivery time of 10 days. However, for each day that a supplier can reduce the average delivery time, the manufacturer is willing to shift 5% of its total purchase to the supplier offering the premium service. A supplier earns a margin of 25% of the selling price on each case before transportation cost kicks in.

   Suppose Supplier A is willing to reduce its average delivery time by 3 days and the transportation rate increases by $0.5 per case for each day reduced in average delivery time. Assume that Supplier B take no action, how much profit can Supplier A make by offering the premium transportation service?

   		83850
   		69000
   		390000
   		36000
   		85000