BUAD 311 Homework 4: Revenue Management Due: 10/2/07 1. (30 points) One week before a particular flight, an airline still has 35 seats left for that flight. The airline estimates the following demand for tickets for that flight: Tickets Price Demand $200 40 $250 30 $300 20 $350 10 Which of the four prices above should the airline pick to maximize revenue? 2. (30 points) Problem 5 on page 445 in the textbook. a) (10 points) Draw the decision tree. b) (15 points) What are the expected profits of the (three) possible strategies? c) (5 points) Which is the (overall) best strategy? 3. (40 points) Kristen graduated from college and, following her successful business known as Kristen’s Cookies Co., she decided to open a bakery. The total cost of a new cookie machine is $1M and it has the capacity to produce 10M cookies per year. If Kristen were to purchase two such machines at the same time, the equipment supplier would be willing to sell them both at a discount for $1.8M. 1
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