A retailer selling t-shirts has an initial stock of 5000 units and an initial price of $30. Because of a company policy, the manager can only mark-down the price once by taking 25% off at the end of the season. The remaining inventory 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 45%.
a) What is the maximum value of x that would make this mark-down profitable?
b) What is the relation between salvage value and a mark-down strategy?