The formula sheet is provided on the third page! Problem 1. Hotel California Hot

Question

The formula sheet is provided on the third page!

Problem 1. Hotel California

Hotel California is a luxury hotel which has just got a new manager, Rocky. Given its location and quality, the hotel always had enough people making advance reservations to fill up all the rooms available. The hotel charges $200 per room per night for reservations made in advance (Hint: think of this $200 as the purchasing cost in the Newsvendor model). Rocky had taken the OPRE3310 at UTD last semester and decided to implement some of those techniques in his current job. He implemented a policy of reserving some rooms for last-minute requests and charges these requests $300 per room per night (Hint: think of this $300 as the selling price in the Newsvendor model). The unsold reserved rooms are worth nothing at the end of the day (Hint: that is the salvage value is $0). Based on his estimation, the number of last minute customers is uniformly distributed with minimum of 1 and maximum of 10.

a) How much is the cost of reserving too little by one? That is the underage cost, ????.

b) How much is the cost of reserving too much by one? That is the overage cost, ????.

c) What is the optimal service level?

d) How many rooms should be reserved for last-minute customers? Hint: what is ????

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Problem 2. Hotel California

The hotel has a bookstore, which buys business newspapers from a print house at $0.3 per copy and sells them at $0.5 per copy (Hint: that is the purchasing cost is $0.3 and the selling price is $0.5). Any extra unsold copies are returned to the print house for a half refund (Hint: that is the salvage value is $0.15). Demand for newspapers is uniformly distributed with minimum of 10 and maximum of 80.

a) How much is the underage cost, ?????

b) How much is the overage cost, ?????

c) What is the optimal service level?

d) How many newspapers should the bookstore order, ????

e) How many newspapers should the bookstore order if any extra unsold copies can be returned to the print house for a full refund (Hint: that is the salvage value is $0.3)?

OPRE 3310 Newsvendor Formula Sheet Cost of underage: Cu - Selling price - Purchasing cost Cost of overage: Co - Purchasing cost - Salvage value Optimal service level - If demand is uniformly distributed with minimum demand of Min and maximum demand of Max C. co + Cu then optimal order Q* is: C. 0* = (Max-Min) + Min Co t cu

Explanation / Answer

Solution-

Since Chegg policy entitles me to solve the first question in case multiple questions are posted, I am here solving question number 1.

Given Data,

Purchasing cost - $200

Selling price- $ 300

Salvage value = 0

Max demand = 10

Min Demand = 1

a. Underage cost, Cu = Selling price - purchasing cost = 300 - 200 = $100

b. Overage Cost, Co = Purchasing cost - salvage value = 200 - 0 = $200

c. optimal service level = Cu/(Co + Cu) = 100/(200 + 100) = 0.33

d. Q = Min + (Max - Min) * [Cu/(Co + Cu)] = 1 + (10-1) * 0.33 = 4

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