Reference no: EM1319812

Question: Classes are just about to start, & the campus bookstore is not sure that it will be able to meet the demand of all student textbook orders with its current inventory. The typical semester revenue from textbook sales for this bookstore is $450,000. Under the current inventory, they estimate there is a 40% chance that there will be enough books if all students buy their books within the first two days of school. However, if the bookstore orders more books today & the suppliers expedite their shipments, there is a 50 percent chance that their shipment will arrive within the first two days of classes. The expedited shipment will cost the bookstore an additional $5,000. If, by the second day of class, there are not enough books to meet the student demand, the bookstore needs to decide if they should offer “half off” coupons to students in order to keep their business & prevent them from buying their books form the competing bookstore downtown. Offering these discount coupons will immediately cost the bookstore $2,000, & there is a 90 percent chance that they will make only half of their typical semester revenue & a 10 percent chance they will not make any revenue. If they do not offer these discount coupons to the students, there is a 50 percent chance that they will make half of their typical semester revenue, 25 percent chance that they will make a quarter of their typical semester revenue, & 25 percent chance that they will not make any revenue.

Identify the strategy that maximizes the campus bookstore’s expected earnings.