1. Roolex is a manufacturer of imitation Rolex "knock-offs". They have 500 watches on hand that already cost $15 each to make. They are, however, out of style and cannot be sold as is - even the people buying watches off the street won't buy them!

All is not lost, however, because they can be "refitted" at an additional cost of $4 per watch, and then sold for $18 each.Alternatively, Sam Sham the Discount Man will buy them for $3 each and use the watch bands, throwing everything else away.

1. What should they do - refit the watches or sell to Sam Sham, and why?How much better off would Roolex be if they followed YOUR recommendation?