Concept explainers
Seas Beginning sells clothing by mail order. An important question is when to strike a customer from the company’s mailing list. At present, the company strikes a customer from its mailing list if a customer fails to order from six consecutive catalogs. The company wants to know whether striking a customer from its list after a customer fails to order from four consecutive catalogs results in a higher profit per customer. The following data are available:
- If a customer placed an order the last time she received a catalog, then there is a 20% chance she will order from the next catalog.
- If a customer last placed an order one catalog ago, there is a 16% chance she will order from the next catalog she receives.
- If a customer last placed an order two catalogs ago, there is a 12% chance she will order from the next catalog she receives.
- If a customer last placed an order three catalogs ago, there is an 8% chance she will order from the next catalog she receives.
- If a customer last placed an order four catalogs ago, there is a 4% chance she will order from the next catalog she receives.
- If a customer last placed an order five catalogs ago, there is a 2% chance she will order from the next catalog she receives.
It costs $2 to send a catalog, and the average profit per order is $30. Assume a customer has just placed an order. To maximize expected profit per customer, would Seas Beginning make more money canceling such a customer after six nonorders or four nonorders?
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Chapter 11 Solutions
Practical Management Science
- This problem is based on Motorolas online method for choosing suppliers. Suppose Motorola solicits bids from five suppliers for eight products. The list price for each product and the quantity of each product that Motorola needs to purchase during the next year are listed in the file P06_93.xlsx. Each supplier has submitted the percentage discount it will offer on each product. These percentages are also listed in the file. For example, supplier 1 offers a 7% discount on product 1 and a 30% discount on product 2. The following considerations also apply: There is an administrative cost of 5000 associated with setting up a suppliers account. For example, if Motorola uses three suppliers, it incurs an administrative cost of 15,000. To ensure reliability, no supplier can supply more than 80% of Motorolas demand for any product. A supplier must supply an integer amount of each product it supplies. Develop a linear integer model to help Motorola minimize the sum of its purchase and administrative costs.arrow_forwardAnother way to derive a demand function is to break the market into segments and identify a low price, a medium price, and a high price. For each of these prices and market segments, we ask company experts to estimate product demand. Then we use Excels trend curve fitting capabilities to fit a quadratic function that represents that segments demand function. Finally, we add the segment demand curves to derive an aggregate demand curve. Try this procedure for pricing a candy bar. Assume the candy bar costs 0.55 to produce. The company plans to charge between 1.10 and 1.50 for this candy bar. Its marketing department estimates the demands shown in the file P07_47.xlsx (in thousands) in the three regions of the country where the candy bar will be sold. What is the profit-maximizing price, assuming that the same price will be charged in all three regions?arrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,