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M ASSACHUSETTS I NSTITUTE OF T ECHNOLOGY 15.053 – Optimization Methods in Management Science (Spring 2007) Recitation 10, May 9 th 2007 Problem 1: Newsvendor Type Problem Paris Hilton has developed an ultra fashionable summer satin top for miniature dogs. Since the satin top is part of the summer line she can only sell it for the full price of $50 during the summer. At the end of the summer the dog-tops sell at a price of $5. The creation of dog-tops has a cost of $10 per top. Paris knows that the demand for these dog- tops is somewhere between 10,000 and 20,000. She also knows that if she prices them at $5 at the end of the summer they will all be sold. Use the Newsvendor problem approach to decide how many dog-tops Paris should produce in order to maximize her expected profit. Problem 2: Gerber Baby (True story from 1998-99. <>) Gerber Products, Inc. needs help in deciding whether to continue using the plastic known as PVC in pacifiers and feeding products. PVC, a composite plastic, is made pliable with a softening chemical called “phthalates”. Although phthalates have been used in plastic for over 30 years without any cases of health problems, Greenpeace announced that their scientific testing on the chemical has been found it to be carcinogenic in lab rats. Due to this announcement the Consumer Product Safety Commission has decided to study the matter further and issue a press release with their results. This is the point at which Gerber decides to implement a decision tree. Gerber faces two choices: be reactive, wait for the announcement, and gauge consumer
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This note was uploaded on 01/18/2012 for the course MGMT 15.053 taught by Professor Jamesorli during the Spring '07 term at MIT.

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