SCOT 519E Final Exam

Fall 2023

Instructions: Complete this exam on your own, to the best of your abilities.  Once you begin, you will have 48 hours to complete the exam.  You may use any of the class materials distributed throughout the semester, as well as books and reference sites. The use of artificial intelligence, or tutoring sites such as Chegg.com and Skooli is strictly forbidden. Submit your answers via Canvas.  You may include Excel sheets or R code as an appendix, but please have a dedicated answer sheet in Word (.doc) or PDF (.pdf) format.  There are 5 questions, each worth 20 points.  Partial credit will be awarded so please show your work.

1. One of Santa’s elves recently completed a Master’s in Business Analytics and suggested that Santa try to open up additional revenue streams to increase the profitability of the North Pole.  An early suggestion was to modify unused office spaces in the Castle and the Workshop as a resort where people could come and stay during the off-season when North Pole operations were not so busy.  During a 15 week pilot season, various prices for the Castle and Workshop were tested, with the Castle being marketed as a “premium” booking option.  Prices and bookings, shown below, are per night.

The resulting linear regression demand models are as follows:

Castle: 34.254 + (-.07936*p)

Workshop: 45.013 + (-.17301*p)

a. Assuming that the Castle has 15 suites available, and the Workshop has 20 suites available, determine the optimal prices to maximize revenue for the North Pole Resort.  What are the prices, bookings, and total revenues?

b. Which demand segment – the Castle or the Workshop, has a greater price sensitivity?  Why?

c. At a cost of $500 per season, an additional unused room in the Castle could be converted into another suite.  Assuming that the resort season is 15 weeks long, would you advise Santa to convert the space into a suite? (Hint: the model that you built evaluates booking and pricing activity for one week).

2. At the North Pole Resort snack bar, patrons have a choice between Milk, Cookies, or a bundle of Milk and Cookies.  The elves have identified four market segments.  Their willingness to pay is shown below, as are the prices of the items.

a.  Which customer segments will buy which items, and what is the total revenue that will be earned?

b. What would the effect on revenue be if the North Pole increase the price of Milk to 3.5 and adjusted the bundle price accordingly?

3. Naturally, the primary transport method to and from the North Pole is the Polar Express train.  The train is divided into a nested two-class layout.  The premium class, called Jingle Bell class, costs $150 for a round trip ticket to and from the North Pole.  The coach class, called Fir Tree class, costs $138for a round trip ticket.  Demand for Jingle Bell class fares are normally distributed with a mean of 30 and a standard deviation of 20.

a. Assuming that the Polar Express can accommodate 200 passengers, how many seats should be reserved for Jingle Bell customers.  Round UP to the nearest whole seat.

b. What should be the booking limit for Fir Tree fares?

c. What is the expected revenue from this layout?  If using a loss table, round DOWN to the nearest Z value on the table. Do not round demand numbers as this is an expected value. Assume that remaining capacity will be filled by Fir Tree fares.

4. A fact that is not known to many is that North Pole elves, Keebler baked goods elves and the Lord of the Rings elves are all distantly related!  After the holiday season the elves like to go and visit family members.  This is another place where Santa’s flying reindeer and the sleigh fleet come in handy – Elf Airways!  There are, as such, 4 stops: North Pole, Keebler Tree, Rivendell, and Mirkwood forest (remember that some elves in Lord of the Rings lived in Mirkwood).  Mirkwood, being centrally located, is the hub of the Elf Airways network.  The network looks like this:

Demand and fare tables are shown below.  How many of each seat should be sold to maximize revenue?  Assume that Elf Airways passenger sleighs have a capacity of 100.

5. In addition to toys, the Elves also manufacture magic feed for livestock that makes them capable of flight.  They currently offer two varieties of feed: Oats, and Corn.  Oats are a premium, high thermal-efficiency feed for high performance flying animals like Santa’s Reindeer.  The magic Corn is an economy feed for smaller flying animals.  The market for flying animal feed is somewhat limited, but the Elves do have a competitor: the Wicked Witch of the West also manufactures flying animal feed.  The elves estimate a market size of 1500 for flying animal feed.  Market share currently looks as such:

a. Compute v_corn and v_oats using this information.  If the price of Corn is $20 per unit and the price of Oats is $30 per unit, what is the revenue under the current system?

b. The Elves were able to interview 100 of the Wicked Witch of the West’s customers.  Forty-five (35) of them indicated that they would switch suppliers to the Elves if the Elves could manufacture a mid-price brand of high energy Hay that would sell for $25 per unit.  Compute v_hay and use this to calculate the Elves’ revenue position if they were to offer this product.

c. Would you recommend offering this new product?  What extra information (if any) would you like to have before making the decision on whether or not to produce the Hay?