Operations Management

Question 6

Chapter 12: Suppose the news vendor model describes a firm’s operations decision. Is it possible to have positive expected lost sales and positive expected left over inventory? Choose the best answer.

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a. No – if there is left over inventory then there should not be lost sales.
b. No – if expected lost sales is positive, then expected left over inventory must be negative.
c. No – actual demand can differ from sales.
d. Yes – they are both expectations over numerous possible outcomes, among which there will be no outcome in which both are positive.
e. Yes – as long as the underage cost is greater than the overage cost.

10 points

Question 7

Inn at Penn has 250 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 70 and std.dev. 22. Assume that there is ample demand for regular-fare customers, but rooms cannot be sold to these customers at the last minute (end of a day).

What should the protection level for the high fare customer be to maximize expected profit? Note: The protection level is the number of rooms not sold to regular customers and kept aside for sale to high fare customers. If you over-protect (i.e., the protection level is too high), and there are fewer high fare customers than the protection level, you lose the regular fare revenue opportunity; if you under-protect and there are more high fare customers than the protection levels, you lose the additional revenue from the high fare customers.

a. Less than 50
b. At least 50 but less than 60
c. At least 60 but less than 65
d. At least 65 but less than 70
e. At least 70 but less than 75
f. At least 75 but less than 80
g. At least 80

10 points

Question 8





Chapter 16: Suppose that the Inn at Penn uses the newsvendor model to set the protection level optimally. Which of the following changes in the environment would be the best argument for lowering protection levels?

a. Low fare demand is Normally distributed with mean 1000 and standard deviation 50 (rather than unlimited).
b. The high fare price for the room has gone down to $600 from $700 (but the distribution of demand remains unchanged).
c. The hotel capacity has gone up from 200 to 300 rooms.
d. All low-fare demand customers stay for one day, while most high-fare customers stay for two nights.
e. None of the other answers apply.

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