Homework_4_RevenueManagement_Solution - 311 Operations...

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311 Operations Management Fall 2007 Homework 4: Revenue Management Due 10/2/2007 Solutions 1. (30 pts.) One week before a flight, an airline still has 35 seats left for this flight. The airline estimates the following demand information in the table. Among these four prices, which price should the airline pick to maximize the revenue? Price Demand 200 40 250 30 300 20 350 10 At price 350, the company can sell 10 tickets, revenue is 350 * 10 = 3500. (5pts) At price 300, the company can sell 20 tickets, revenue is 300 * 20 = 6000. (5pts) At price 250, the company can sell 30 tickets, revenue is 250 * 30 = 7500. (5pts) At price 200, the company can sell min { 40 , 35 } = 35 tickets, revenue is 200 * 35 = 7000. (5pts) The airline should pick price 250. (10pts) (You get 25 pts if your answer is $225 because the problem explictly asks you to choose among the four prices.) 2. (30 pts.) Question 5, page 445, in the book. (10pts. a) Draw the Decision Tree. (10pts) See the top of the next page. (10pts) (15pts. b) What are the expected profits of the three possible strategies?
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