Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Decision Tree . Filene's Basement, a Boston-based department store, has a policy of marking down the price of sale items each week that they go

Decision Tree. Filene's Basement, a Boston-based department store, has a policy of marking down the price of sale items each week that they go unsold. You covet an expensive brand of winter coat that is on sale for $100. In fact, you would be willing to pay as much as $120 for it. Thus, you can buy it now (for a profit of $120-$100=$20) or wait until next week, when the price will be reduced to $75 if the coat is still available. The chances of its being available next week are 2/3. If it is available in week 2, you can buy or wait until week 3. There is a 1/2 chance it will be sold between weeks two and three and a 1/2 chance it will be available at a reduced price of $60. Finally, if it is available in week 3, you can buy or wait until week 4. There is a 1/4 chance it still will be available, at a price of $50 (and a 3/4 chance it will be sold in the meantime). Week 4 is your last chance to buy before the coat is withdrawn.

How long should you wait before buying? Illustrate via a decision tree.

Filene's has 120 of these winter coats for sale. What is its expected total revenue from the pricing scheme in Q4(1)? (One-third of the coats sell in the first week, one-half of the remaining coats in the second week, and so on. All coats in week 4 are sold for $50.)

Alternatively, Filene's can set a single price for all coats. Its demand curve is = 180 . Would it prefer a common-price method or the price-reduction method in part Q4(2)? Explain with your calculation.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managers And The Legal Environment

Authors: E. Bagley

9th Edition

1337555177, 978-1337555173

More Books

Students also viewed these Economics questions

Question

8. What values do you want others to associate you with?

Answered: 1 week ago