SCMG 622 Managing Inventory in the Supply Chain Questions

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SCMG 622 Managing Inventory in the Supply Chain
Revenue Management Assignment
Assigned: November 10, 2022
Due: December 4, 2022
This assignment is worth 20 points. You may complete this assignment in groups of up-to four students. Only one submission per group is required.
Question: Ron, the director at the Annenberg Center, is planning his pricing strategy for a musical
to be held in a 100-seat theater. He sets the full price at $80 and estimates demand at this price to be
normally distributed with mean 60 and standard deviation of 40. Ron also decides to offer studentonly advance sale tickets discounted 50% off the full price. Demand for the discounted student-only
tickets is usually abundant and occurs well before full-price ticket sales.
a. What is the optimal protection level for full-price seats? [5 points]
b. Ron realizes that having many empty seats negatively affects the attendees6alue from the show.
Hence, he decides to change the discount given on student-only tickets to 55% off the full price
and he continues to set the protection level optimally. How will this change in student-only
discount price affect the expected number of empty seats? Will they increase, decrease, remain
the same, or is it not possible to determine what will happen? [5 points]
c. Ron knows that on average eight ticket holders (Poisson distributed) do not ultimately attend
the show. He also estimates that it is 10 times more costly for him to have one more attendee
than seats relative to having one empty seat in the theater. What is the maximum number of
seats to sell in excess of capacity? [10 points]

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