The optimal order quantities that Michelle Peach should use for Dado and for Wedo are 1,270 and 730. The gross margins and expected profits would be:

The annual net income has considered that all the other costs as constant. The advertising revenues are the same (fixed amount, not per unit ad amount).

2. Michelle finds out that Bobby Peru, a local recycler, is willing to pay a salvage value of €0.05 for each left-over unit of Dado and €0.07 for each left-over unit of Wedo. How would this change the optimal order quantity and the corresponding expected profit?

Now that the left over units have a salvage value, the optimal order quantities for Dado and for Wedo are 1,322 and 753. The gross margins and expected profits would be:

The annual net income has considered that all the other costs as constant. The advertising revenues are the same (no changes in Ad revenues)

We recomputed the ad revenues considering a fixed ad revenue per unit sold and got the following profits:

Question 1: $62,368 Question 2: $73,333

We notice that for WEDO, the ad adjustment makes the new model less efficient.

3. (Optional) Frank Scherrer of Ink Inc. has recently acquired a new printing technology which makes processing much faster (with this technology, one can print individual units in a few minutes) but at a higher cost. As an important supplement to this technology, he also offers to upgrade the automatic vending machines so that they will be connected in real-time to the IT system of Ink Inc. This way, they can monitor the inventory status of the vending machines and virtually eliminate all unmet demand. For units printed this way, Frank will charge €0.40 and €0.95 for Dado and Wedo, respectively. (Frank will still charge €0.25 and €0.75 for quantities ordered the night before for Dado and Wedo, respectively.) Qualitatively,