1. (EOQ model) Division X is growing and is in constant need of trained employee
ID: 403029 • Letter: 1
Question
1. (EOQ model) Division X is growing and is in constant need of trained employees. The demand
rate for trained employees is relatively constant at 5 each month. The division can run a training
program that costs $5,000 per offering regardless of class size. Students graduate with a certificate
and a $100/week pay raise. The raise is operative even if they attended the training before the new
job is open and they continue with their old job (until they are reassigned to a higher-skilled
position). What class size is optimal and how many classes should be offered every year? [Hint:
You need not consider anybody%u2019s salary or career after they take their higher-skilled job.]
2. (Newsvendor model) An airline serving Denver's Stapleton Airport and Steamboat Springs,
Colorado is considering overbooking its flights to avoid flying with empty seats. For example, the
ticket agent is thinking of taking seven reservations for an airplane that has only six seats, During
the past month, the no-show experience has been:
No Shows 0 1 2 3 4
Frequency 30 25 20 15 10
The operating costs associated with each flight are pilot, $150; first officer, $100; fuel, $30; and
landing fee, $20.
What would be your recommendation for overbooking if a one-way ticket sells for $80 and the
cost of not honoring a reservation is a free lift ticket worth $50? (Assume that the airline can
transfer overbooked passengers to a competing airline.) What is the expected profit per flight
for your overbooking choice?
Explanation / Answer
Increasing consumer participation in the service process shifts some tasks to the consumer and reduces part of the burden during peak-demand periods. Other possibilities include sharing capacity with others, as airlines do by leasing aircraft during off-season periods. Occasionally, capacity can be ad
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