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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Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659
BuyFind

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659

Solutions

Chapter
Section
Chapter 11.4, Problem 30P
Textbook Problem

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
Ch. 11.3 - In the cash balance model from Example 11.5, the...Ch. 11.3 - In the cash balance model from Example 11.5, is...Ch. 11.3 - Run the retirement model from Example 11.6 with a...Ch. 11.3 - The simulation output from Example 11.6 indicates...Ch. 11.3 - Modify the model from Example 11.6 so that you use...Ch. 11.3 - Referring to the retirement example in Example...Ch. 11.3 - A European put option allows an investor to sell a...Ch. 11.3 - Modify Example 11.8 so that the portfolio now...Ch. 11.3 - Change the new car simulation from Example 11.4 as...Ch. 11.3 - Based on Kelly (1956). You currently have 100....Ch. 11.3 - Amanda has 30 years to save for her retirement. At...Ch. 11.3 - In the financial world, there are many types of...Ch. 11.3 - Suppose you currently have a portfolio of three...Ch. 11.3 - If you own a stock, buying a put option on the...Ch. 11.3 - For the data in the previous problem, the...Ch. 11.3 - A stock currently sells for 69. The annual growth...Ch. 11.3 - A knockout call option loses all value at the...Ch. 11.3 - Suppose an investor has the opportunity to buy the...Ch. 11.4 - Suppose that Coke and Pepsi are fighting for the...Ch. 11.4 - Seas Beginning sells clothing by mail order. An...Ch. 11.4 - Based on Babich (1992). Suppose that each week...Ch. 11.4 - The customer loyalty model in Example 11.9 assumes...Ch. 11.4 - We are all aware of the fierce competition by...Ch. 11.4 - Suppose that GLC earns a 2000 profit each time a...Ch. 11.4 - The Mutron Company is thinking of marketing a new...Ch. 11.5 - A martingale betting strategy works as follows....Ch. 11.5 - The game of Chuck-a-Luck is played as follows: You...Ch. 11.5 - You have 5 and your opponent has 10. You flip a...Ch. 11.5 - Assume a very good NBA team has a 70% chance of...Ch. 11.5 - Consider the following card game. The player and...Ch. 11.5 - Based on Morrison and Wheat (1984). When his team...Ch. 11 - You now have 5000. You will toss a fair coin four...Ch. 11 - You now have 10,000, all of which is invested in a...Ch. 11 - Suppose you have invested 25% of your portfolio in...Ch. 11 - A ticket from Indianapolis to Orlando on Deleast...Ch. 11 - Based on Marcus (1990). The Balboa mutual fund has...Ch. 11 - Consider a device that requires two batteries to...Ch. 11 - Appliances Unlimited (AU) sells refrigerators. Any...Ch. 11 - The annual demand for Prizdol, a prescription drug...Ch. 11 - A company is trying to determine the proper...Ch. 11 - The DC Cisco office is trying to predict the...Ch. 11 - A common decision is whether a company should buy...Ch. 11 - Suppose you begin year 1 with 5000. At the...Ch. 11 - You are considering a 10-year investment project....Ch. 11 - Play Things is developing a new Lady Gaga doll....Ch. 11 - An automobile manufacturer is considering whether...Ch. 11 - It costs a pharmaceutical company 75,000 to...Ch. 11 - Suppose you buy an electronic device that you...Ch. 11 - Rework the previous problem for a case in which...Ch. 11 - Chemcon has taken over the production of Nasacure...Ch. 11 - The Tinkan Company produces one-pound cans for the...Ch. 11 - You are unemployed, 21 years old, and searching...Ch. 11 - In this version of dice blackjack, you toss a...Ch. 11 - It is January 1 of year 0, and Lilly is...Ch. 11 - It is January 1 of year 0, and Merck is trying to...Ch. 11 - Suppose you are an HR (human resources) manager at...Ch. 11 - You are an avid basketball fan, and you would like...Ch. 11 - Suppose you are a financial analyst and your...Ch. 11 - Software development is an inherently risky and...Ch. 11 - Health care is continually in the news. Can (or...

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