Book retailers can return unsold copies to publishers. Effectively, retailers pay for the books they order only after they sell them. Dowell’s Books believes that it will sell, with 1 2 probability each, either zero or one copy of The Fool’s Handbook of Macroeconomics. The bookstore also believes that it will sell,

with 1 2 probability each, either zero or one copy of The Genius’ Handbook of Microeconomics. The retail price of each book is $100. Suppose that the marginal cost of manufacturing another copy of a book is $24. The publisher’s value of a returned copy is $0. The Microeconomics publisher charges a $52 wholesale price and offers a full refund if an unsold book is returned. While the Macroeconomics publisher charges a low $42 wholesale price, it pays a retailer only $32 if it returns an unsold book.
Dowell’s places an order for one copy of each title.
When the two books arrive, Dowell’s has space to shelve only one. Which title does Dowell’s return?
Comment on how Dowell’s decision about which title to return depends on the books’ wholesale prices and on the compensation from the publishers for returned unsold books. M 3. Trade-Off Between Efficiency in Production and in Risk Bearing