Based on the information given in the case, the expected number of attendees is: E(x) = 80,000*0.25 + 50,000*0.5 + 20,000*0.25 = 50,000 people Selling price per shirt: $100/12 = $8.33
Discount price: $1.5
Assumption: George orders 5000 T-shirts; cost: $17,750; the number of attendees buy his T-shirts are 5%, 10% and 15% respectively The possible financial outcomes under scenario 1 are as follows:
Assumption: George orders 7,500 T-shirts; cost = $25,250; the number of attendees buy his T-shirts are 5%, 10% and 15% respectively The possible financial outcomes under scenario 2 are as follows:
Assumption: George orders 10,000 T-shirts; cost: $32,125; the number of attendees buy his T-shirts are 5%, 10% and 15% respectively The possible financial outcomes under scenario 3 are as follows:
Question 2: How many T-shirts should George buy and why?
Assumption: 50,000 people will attend the concert; the chance that 15% of attendees will buy a T-shirt is so low that it is unlikely to happen and therefore, we just ignore this chance. Scenario 2 is out of question because it brings the least profit among the three scenarios. We are left with scenario 1 and 3. Under these 2 scenarios, George will make the same amount of profits whether 5% or 10% of attendees buy a T-shirt from him. In fact, if the chance of them each buying a T-shirt is 15%, George will be the best off under scenario 3. However, this chance is very unlikely to happen. Additionally, the more unsold T-shirts are left after the event, the more time it will take to sell, the longer it will take to get his investment, and he will incur the costs from storing the inventory. Apart from that, it costs George more money on investment in scenario 3 to earn the same amount of money in scenario 1.For all these reasons, George should by...