Posted: March 23rd, 2021
Consider a supply chain consisting of a heavy machine mfr., its part supplier, the dealer, and the customer. The mfr. produces customized machine and uses the dealer to sell to the customer. Suppose the customer’s reservation price of the machine is $300,000. The retail price is $250,000. The wholesale price between the mfr. and the dealer is $200,000. The dealer’s other retail-related cost is $20,000. To produce the machine, the mfr. spends $50,000 as the production cost and pays the supplier $40,000 to buy the parts needed. The parts are not customized and the supplier’s production cost is $10,000.
Q. What is the supply chain surplus and what is the mfr.’s objective (net profit)?
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