Practice Questions - Revenue Management Answers

# Practice Questions - Revenue Management Answers - Practice...

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Practice Questions: Revenue Management 1. The Tastebest Ham Company finds that the demand can be roughly approximated as a function of price: Demand = 7 – Price Assume the cost of the Company for each package is 1, a. What is the price that maximizes the company’s profit? The profit = Demand * Margin = (7 – Price) * (Price – Cost) = – Price 2 + 8Price – 7 The profit function is maximized at price 8/2=4. b. If the Ham Company only has a capacity of 2, what is the price that maximizes the company’s profit? With capacity constraint, the profit = Realized Demand * Margin = Min {Capacity, Demand} * (Price – Cost) At price equal to 4, the demand is 7 – 4 = 3, exceeding the company’s capacity. The company should charge the maximum possible price for its capacity. This price is 7 – Capacity = 7 – 2 = 5. 2. A flight has 50 seats left. The full-fare tickets are priced at \$300 and the discount tickets are priced at \$200. The airline estimates that the demand of full fare customers is uniformly distributed between 20 and 69.

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