Florida Internet MBA Program MAN 5501 - Operations Management Assignment 3 (Newsvendor Approach, and Revenue Management) (12.5% of course grade) 1. The Supermarket Store is about to place an order for Halloween candy. One bestselling brand of candy can be purchased at $ 2.40 per box and usually is sold for $ 4.25 per box before and up to Halloween. After Halloween, all the remaining candy can be sold for $ 1.00 per box. Demand for the candy at the regular price is a random variable with the following discrete probability distribution: Demand (boxes) Probability 8 0.25 9 0.15 10 0.20 11 0.25 12 0.15 You are required to: a. Complete the following table to determine the optimal order quantity (Q*). Each entry in the table represents the profit made by the store for a given combination of demand and stocking quantity. Demand in Probability boxes 8 0.25 9 0.15 10 0.20 11 0.25 12 0.15 Expected profit Q=8 Q=9 Q=10 Q=11 Q=12 b. Determine the optimal order quantity using the critical ratio. Does this order quantity correspond to the answer in part a? 2. Inn at Penn has 200 rooms. For regular-fare customers, rooms are priced at $300 per night while the rooms are priced at $700 per night for the high-paying customers who generally arrive at the last minute. The demand for such high fare customers is distributed normally with mean 60 and standard deviation 50. Assume that there is ample demand for regular-fare customers. a. What should the protection level for the high fare be to maximize expected profit? b. Suppose that Inn at Penn operates with the protection level of 80 rooms for high fare customers. On average, how many high-fare customers are turned away because of lack of rooms? c. Suppose again that the Inn at Penn operates with the protection level of 80 rooms for high fare customers. What is the probability that there are at least 5 rooms left unoccupied? 3. JetRed Airways flies several daily flights from Philadelphia to Chicago. Based on historical data, the flight on Wednesday evening before Thanksgiving is always soldout. However, there are usually no-shows so the airline decides to improve revenues by overbooking. The no-shows are normally distributed with a mean of 8 and a standard deviation of 3 and the airline estimates that the cost of bumping a passenger is about 10 times more than ticket price. a. How many seats should JetRed overbook? b. JetRed management is dreading bad publicity around Thanksgiving so it decides instead that it does not want to bump passengers more than 5% of the time. What is the maximum number of seats that JetRed can overbook? c. Suppose 6 seats are overbooked. How many seats can JetRed expect to have empty, on average? 4. JetAirways flight from Philadelphia to Boston has 350 seats. The high fare on the flight is $780 and the restricted/low fare is $500. There is ample demand for the low fare class but high fare demand is uncertain. Demand for the high fare is normally distributed with mean 150 and standard deviation of 45. Further, the customers buy low fare tickets well in advance of high fare customers. a. What is the optimal protection level for the high fare tickets? b. What is the expected revenue (in thousands) from high fare passengers when a booking limit of 200 is selected for the low fare tickets? c. The JetAirways Customers' Bill of rights states that \"Customers who are involuntarily denied boarding shall receive $1,200 in addition to a ticket refund.\" The RM department notices that the number of no-shows is normally distributed with mean 7.5 and standard deviation of 3. What is the maximum number of reservations in excess of plane capacity that the airline should accept? This assignment will be evaluated using the following grading scale: Problem 1 Question (a) (b) Maximum Points 18 12 Assigned Points Comment Maximum Points 10 10 10 Assigned Points Comment Maximum Points 10 10 15 Assigned Points Comment Maximum Points 10 10 10 Assigned Points Comment Problem 2 Question (a) (b) (c) Problem 3 Question (a) (b) (c) Problem 4 Question (a) (b) (c) Max Score: 125 Points Assigned Score:__________ Points