Random Things Magazine sells its magazines through Narms and Baubles bookstores. It costs Random Things Magazine $0.50 to print each magazine; it sells the magazines to Narms and Baubles for $2.00. Narms and Baubles then sells the magazines at retail for $5.00. Whatever doesn't sell gets thrown away. Demand for the magazine each week is normal with a mean of 5650 and a standard deviation of 1286. To give Narms and Baubles incentive to order more magazines, it proposes a revenue-sharing contract. Instead of selling the magazines to Narms and Baubles for $2.00, Random Things Magazine will sell its magazines to Narms and Baubles for only $0.75. However, for each magazine that Narms and Baubles sells at retail, Narms and Baubles must give $1.00 back to Random Things Magazine. With this revenue sharing agreement in place, what is the optimal order amount that will maximize Narms and Baubles' expected profit?

Q&A Education