Company C has a production capacity of 1,000 units per day. Currently, the company sells its production capacity for £5 per unit. At this price, all production capacity gets booked about one week in advance. Some customers have said that they would be willing to pay £10 per unit if Company C had capacity available on the last day. About ten days in advance, demand for the high-price segment is normally distributed with a mean of 250 and a standard deviation of 100.

Questions

a) How much production capacity should Company C reserve for the last day? Please show your full working.

b) If the price those customers are willing to pay for the last day increases by 50% (i.e. becoming £15 per unit), how much additional product capacity should Company C reserve for the last day? Please show your full working.

c) If the price for the low-paying segment and the price for the high-paying segment both double (becoming £10 and £20 respectively), comment, without calculations, on how much additional production capacity Company C should reserve for the last day.

d) In what ways can (i) a supermarket like ASDA, and (ii) a luxury department store chain such as Selfridges, take advantage of revenue management opportunities?

Answer rating: 100% (QA)

Lets go through each of the questions step by step a To determine how much production capacity Company C should reserve for the last day we need to find the production capacity that maximizes their re... View the full answer