Assume that any leftover sweatshirts have value

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Chip Bilton sells sweatshirts at State U football games. He is equally likely to sell 300 or 600 sweatshirts at each game. Each time Chip places an order, he pays $700 plus $5 for each sweatshirt he orders. Each sweatshirt sells for $9. A holding cost of $3 per shirt (because of the opportunity cost for capital tied in sweatshirts as well as storage costs) is assessed against each shirt left at the end of a game. Assuming that the number of shirts ordered by Chip must be a multiple of 100, determine an ordering policy that maximizes the expected profit earned during the first three games of the season. Assume that any leftover sweatshirts have a value of $6.

Reference no: EM131396486

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