Bose is producing headphones QC35. If Bose makes the headphones itself, the margin on the product is $200 and it costs $100 to produce the headphones. Alternatively, Bose can hire a contractor to produce these headphones. Contractor’s margin is $150, cost of production is the same as Bose’s. Consider a decision on capacity investment (done by either Bose or a contractor). How do optimal service levels that Bose and contractor want to set relate to each other? (choose the closest answer)
1) Bose’s service level is 20% higher than that of the contractor
2) Bose’s service level is 10% lower than that of the contractor
3) Bose’s service level is 30% higher than that of the contractor
4) Bose’s service level is 20% lower than that of the contractor
5) Bose’s service level is 30% lower than that of the contractor
6) Bose’s service level is the same as the contractor’s
7) Bose’s service level is 10% higher than that of the contractor