General Instructions

Clearly explain your work and how you obtained your answers.

What to turn in: Submit an Excel file containing all your work, as detailed below.

Advance vs$.$ Last$-$minute Sales

A television station has $20$ thirty$-$second advertising slots during its regularly scheduled programming each evening. The station is now selling advertising for the first few days in November. It could sell all the slots immediately for $$9,000$ each; however, because the Tuesday after the first Monday of November will be Election Day, the station manager knows that she might be able to sell slots at the last minute to political candidates in tight races for a price ranging anywhere between $$11,000$ and $$16,000$ each. The demand for these last$-$minute slots is estimated to be between $2$ and $11,$ with a most likely value of $10.$ Slots not sold in advance and not sold to political candidates at the last minute can always be sold to local advertisers for $$2,000.$

a$)$ Build a model to calculate the revenue the station will receive as a function of the parameters described above. Using MC simulation, estimate the expected revenue if $10$ advertising slots are sold in advance.

b$)$ What is the probability that selling $10$ slots in advance will generate more revenue than selling all slots in advance?

c$)$ How many advertising slots should be sold in advance if the station manager wants to maximize expected revenue? Provide a summary table and graph showing expected revenue as a function of number of slots sold in advance.

d$)$ Suppose the station manager wants to take account of the risk in this decision by using a risk tolerance coefficient of $$30,000.$ What is the optimal number of slots to sell in advance?

Instructions. Produce an Excel file with your model and answers to the questions all on one worksheet; all relevant simulation output can be shown on other sheets. Type text somewhere on your Excel sheet to explain your answers. Clearly identify your answers by question number, so that I do not have to guess where to find them. Because there may be different possible approaches to some of the questions, please be sure to properly explain and document how you obtained your answer. Important: Use SimVoi as the MC Simulation software used, your Excel file should show relevant simulation results and answers.