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A Television Station
A Television Station
A Television Station
A. Suppose the station plans to give away the videos. How many DVDs should it order?
From which supplier?
First we find the order quantity Q when the cost of the suppliers is equal
Cost of Supplier A = Cost of Supplier B
1,200 + 2Q = 0 + 4Q
2Q = 1,200
Q = 600
Hence, at Q=600, both supplier costs are equal. If Q < 600, choose Supplier
B and if Q > 600, choose Suppler A.
Since the station is planning to give away videos, it implies P=0.
Hence Q = 1600- 200*0=1600. That is it should order 1600 DVDs.
If it orders 1600 DVDs from supplier A, the cost is =1200 + 3200 =$4400.
If it orders from B, the cost is = $6400.
Hence it should order from Supplier A since it is cheaper.
B. Suppose instead that the station seeks to maximize its profit from sales of DVDS. What
price should be charged? How many DVD should it order from which supplier?
8 Q*/100 = 2
Q*/100 = 6
Q* = 600
Hence, P* = 8 (1/200)*600 = 8 3
P* = 5
For supplier A, Q* = 600, P*= 5
RevenueA = (P*)(Q*) (1200 + 2Q*)
= (5)(600) (1200 + 2x600)
= 3,000 2,400
= $600
Similarly, For MCB = 4: Setting MR=MC
8 Q*/100 = 4
Q*/100 = 4
Q* = 400
P* = 8 (1/200)*400 = 8 2
P* = 6
For Supplier B: Q* = 400, P* = 6
RevenueB = (P*)(Q*) (4Q*)
= (6)(400) (4x400)
= 2,400 1,600
= $800