Teddy Bower:-

Teddy Bower sources a parka from an Asian supplier for $10 each and sells them to customers for $22 each. Leftover parkas at the end of the season have no salvage value. (Recall Q 1 1 .6.) The demand forecast is normally distributed with mean 2, 1 00 and standard deviation 1 ,200. Now suppose Teddy Bower found a reliable vendor in the United States that can produce parkas very quickly but at a higher price than Teddy Bowers Asian supplier. Hence, in addition to parkas from Asia, Teddy Bower can buy an unlimited quantity of additional parkas from this American vendor at $15 each after demand is known.

a. Suppose Teddy Bower orders 1 ,500 parkas from the Asian supplier. What is the probability that Teddy Bower will order from the American supplier once demand is known?

b. Again assume that Teddy Bower orders 1 ,500 parkas from the Asian supplier. What is the American suppliers expected demand; that is, how many parkas should the American supplier expect that Teddy Bower will order?

c. Given the opportunity to order from the American supplier at $15 per parka, what order quantity from its Asian supplier now maximizes Teddy Bowers expected profit?

d. Given the order quantity evaluated in part c, what is Teddy Bowers expected profit?

e. If Teddy Bower didn't order any parkas from the Asian supplier, then what would Teddy Bowers expected profit be?