2. A retailer selling t-shirts has a remaining stock of 5000 units that have a current selling price of $40 each. Because of a company policy, the manager can only mark-down the price with a 25% reduction. The remaining inventory at the end of the season is sold back to the manufacturer at x dollars. From historical data, the manager knows that the average demand jump with 25% mark-down is 40%.

a) What is the maximum value of x that would make this mark-down profitable now? (10 points)

b) What is the relation between salvage value and a mark-down strategy? Provide a brief discussion pointing out to main trade-offs. (10 points)