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Formulating a payoff table for given situation

A buyer for a large department store chain must place orders with an athletic shoe manufacturer 6 months prior to the time the shoes will be sold in the department stores. In particular, the buyer must decide on November 1 how many pairs of the manufacturer's newest model of tennis shoes to order for sale during the upcoming summer season. Assume that each pair of this new brand of tennis shoescosts the department store chain $45 per pair. Furthermore, assume that each pair of these shoes can then be sold to the chain's customers for $70 per pair. Any pairs of these shoes remaining unsold at the end of the summer season will be sold in a closeout sale next fall for $35 each. The probability distribution of consumer demand for these tennis shoes (in hundreds of pairs) during the upcoming summer season has been assessed by market research specialists and is in the attached file. Finally, assume that the department store chain must purchase these tennis shoes from the manufacturer in lots of 100 pairs.

a. Formulate a payoff table that specifies the contribution to profit (in dollars) from the sale of the tennis shoes by this department store chain for each possible purchase decision (in hundreds of pairs) and each outcome with respect to consumer demand.


Solution Summary

This posting shows the procedure to formulate a payoff table for following situation.