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Solution_ Homework5_Revenue Management

# Solution_ Homework5_Revenue Management - 311 Operations...

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311 Operations Management Fall 2008 Solution: Homework # 5 – Revenue Management 1. (30 points) Question 6 on page 138 of the book. \$4 Million \$3,000 x 1500 =\$4.5 Million \$2,000 x 1500 = \$3 Million \$5 Million \$4,000  x 600 = \$2.4 Million .70 .30 .60 Shopping Center Apartments Houses .60 .40 .40 Rezoned Not Rezoned 2 1 3 \$3 Million \$2 Million 10 points for the graph Rezoned shopping center: Point 1: Expected value = .70(\$4 Million) + .30(\$5 Million) = \$4.3 Million (5 points) Rezoned apartments: Point 2: Expected value = .60(\$4.5 Million) + .40(\$3 Million) = \$3.9 Million (5 points) Since a shopping center has more value, prune the apartment choice. In other words, if rezoned, build a shopping center with a profit of \$4.3 Million - \$3 Million = \$1.3 Million 1

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If not rezoned: Point 3: Expected Profit is \$2.4 Million - \$2 Million = \$.4 Million (5 points) Best strategy is to build a shopping center if the land is rezoned and its expected profit is .60(\$1.3 Million) + .40(\$.4 Million) = \$.94 Million (5 points) 2. (30 points, 20 points for a and 10 points for b) One week before a flight, an airline still has 35 seats left for this flight. The airline estimates the following
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