[Qs. 1-5] The Broadway Theatre in NYC houses 1761 seats. In order to maximize re

Question

[Qs. 1-5] The Broadway Theatre in NYC houses 1761 seats. In order to maximize revenues, the theatre has decided to have two fare classes. High (H) fare class tickets sell for $100 and the Low (L) fare class tickets sell at a discounted price of $75. There is ample demand for the low fare class, but high fare demand is random. Furthermore, the customers who buy low fares, buy their tickets well in advance before high fare customers. Assume the demand for high fare tickets is normally distributed with a mean of 1200 and a standard deviation of 150.

1. What would be the theatre’s revenues without yield management?

$132,075

$157,275

$176,100

Cannot be determined from the information provided.

2. What is the Optimal Protection Level?

1100

1200

1250

1300

1400

Cannot be determined due to insufficient data.

3. The Pioneer Theatre, also in NYC, declares a fare war by slashing its high fare ticket prices. In response, the Broadway Theatre wants to reduce its high fare from the original $100. The low fare tickets continue to be priced at $75. (The new ticket price for the high fare will still be above the low fare.) Assume that the demand for high fare tickets is the same, i.e., normally distributed with a mean of 1200 and a standard deviation of 150. At the new prices, the optimal protection level for the high fares will

Increase

Decrease

Remain the same

Increase or Decrease, depending on the actual high fare ticket price.

4. If the Broadway theatre decided to overbook “X” number of tickets, how would the protection level and booking limits change?

No Change. Protection Level and Booking Limits would remain the same.

Protection Level would increase, Booking Limit would remain the same.

Protection Level would decrease, Booking Limit would increase.

Booking Limit would increase, Protection Level would remain the same.

Booking Limit would decrease, Protection Level would increase.

Note: Always choose the closest answer, even if this is not explicitly specified.

3

The Broadway Theater knows that some of the customers who reserve tickets will not show. The theatre estimates that the cost of turning a customer away due to overbooking is $125 (which includes the cost of refunding the ticket). Furthermore, they estimate the distribution of no-shows to be normally distributed with a mean of 100 and a standard deviation of 25. How many customers should Broadway overbook per show?

a. 90 b. 100 c. 105 d. 110

When would setting protection levels and booking limits NOT be beneficial?

Capacity is sold in advance.

Advance purchase requirements, cancellation fees, and change fees are used as fences to discriminate

between different customer segments.

Capacity is perishable, i.e., unused capacity on a given date is lost forever.

The same unit of capacity can be sold at a different price to different customer segments.

None of the above, i.e., setting protection levels and booking limits is useful in all the above cases (a) to

(e).

Explanation / Answer

NYC can house 1761 seats, H class sells for 100$ and L class sells for 75$. The mean demand for Hclass tickets is 1200 seats with a standard deviation of 150

a. The theatre's revenues without yield management would be just taking the revenues based on average demand from both classes of tickets = (1200 * 100$) + (561*75$) ~ 157275$

b. Optimal protection level is keeping a reserve of high fare seats so that the number of seats does not run out of stock

The optimal protection level in terms of seats will be = no. of seats + 1 Std. deviation = 1200 + 150 = 1350.

So the optimal protection level can be chosen at 1400 seats

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