The Campus Bookstore Sells Highlighters That It Purchases by the Case

Essay

The campus bookstore sells highlighters that it purchases by the case. Cost per case, including shipping and handling, is $200. Revenue per case is $350. Any cases unsold will be discounted and sold at $175. The bookstore has estimated that demand will follow the pattern below
$$\begin{array} { | c | c | } \hline \text { Demand level } & \text { Probability } \\\hline 10 \text { cases } & 20 \% \\\hline 11 \text { cases } & 20 \% \\\hline 12 \text { cases } & 40 \% \\\hline 13 \text { cases } & 15 \% \\\hline 14 \text { cases } & 5 \% \\\hline\end{array}$$ a. Construct the bookstore's payoff table.
b. How many cases should the bookstore stock in order to maximize profit?
c. How would your answer differ if the clearance price were not $175 per case but $225 per case? (It is not necessary to re-solve the problem to answer this.)