The demand for a book is:

5,000 with probability 0.3

6,000 with probability 0.2

7,000 with probability 0.4

8,000 with probability 0.1

The cost of printing a book (c) is $1.20, the wholesale price (w) is $10, the selling price (p) is $21, the holding cost (h) is $1. If you would like partial credit, please show your work and the assumptions you made.

1. What are the retailers Cu and Co?

2. What are cu and co for the entire channel?

3. What is the optimal service level of the channel?

4. If both players agree to a buyback price of $10 per book, what wholesale price (w) would coordinate the channel? Please show all work.