Solutions chap 1 Please see the attached file. 7.

7. Suppose you are on a weekend trip to a city that is d miles away. Develop a model that determines your round trip gasoline costs. What assumptions or approximations are necessary to treat this model as a deterministic model? Are these assumptions or approximations acceptable to you? Let C=Total Gasoline cost in $ d = distance of city p=price of gasoline per gallon m=mileage per gallon C=2*d*p/m A deterministic model is a mathematical model which contains no random (stochastic) components; consequently, each component and input is determined exactly. To make the model deterministic we need to make following assumptions. 1. The distance traveled will remain constant and known i.e. we will move totally as per plans and there will be no diversions or digression from the route for any purpose i.e. for food, rest, entertainment etc. 2. The price of gasoline will remain same throughout the journey 3. The mileage of the car would be constant and known. Although we can assume and plan to a large extent for the assumption number 1 but assumption three that mileage of the car will be constant is highly unacceptable. The mileage of the car depends upon a large number of factors such as condition of road, driving speed, drivers skills, traffic on road, number of stoppages, etc. 11. For most products, higher prices result in a decreased demand, whereas lower prices result in an increased demand. Let D= annual demand for a product in units P= price per unit Assume that a firm accepts the following price demand relationship as being realistic: D= 800-10p Where p must be between $20 and $70 A. How many units can the firm sell at the $20 per unit price? At the $70 per unit price? At $20, D=800-10*20=600 At $70, D=800-10*70=100 B. Show the mathematical model for the total revenue (TR), which is the annual demand multiplied by the unit price. TR=D*p=(800-10p)*p = 800p-10p2 C. Based on other considerations, the firm's management will only consider price alternatives of $30 $40 and $50. Use your model from part (b) to determine the price alternative that will maximize the total revenue. At $30, TR=800*30-10*302=15,000 At $40, TR=800*4010*402=16,000 At $50, TR=800*50-10*502=15,000 Total Revenue is maximized when the price $40. D. What are the expected annual demand and the total revenue according to your recommended price? At the Price of $40, the expected annual demand is D=800-10*40=400 and total revenue is $16,000 13. Micromedia offers computer training seminars on a variety of topics. In the seminars each student works at a personal computer, practicing

the particular activity that the instructor is presenting. Micromedia is currently planning a two day seminar on the use of Microsoft Excel in statistical analysis. The projected fee for the seminar is $300 per student. The cost for the conference room, instructor compensatipn , lab assistants, and promotion is $4800. Micromedia rents computer for its seminars at a cost of $30 per computer per day. A. Develop a model for the total cost to put on the seminar. Let x represent the number of students who enroll in the seminar. Total cost (TC) = Fixed cost + Variable cost per student * number of students TC=4800 + 30*2*x=4800+60x Note: seminar is for two days so rent for computer is 30*2=$60 per student. B. Develop a model for the total profit if x students enroll in the seminar. Profit = Total revenue - total cost Profits = 300*x - (4800+60x) = 240x-4800 C. Micromedia has forecasted an enrollment of 30 students for the seminar. How much profit will be earned if their forecast is accurate? Profits = 240*30-4800=2400 D. What is the breakeven point? At break even point, total profits is zero, so equate the profit equation to zero and solve for x. 240x-4800=0 x=20 15. Preliminary plans are underway for the construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individual may buy the boxes for $100,000 each. The fixed construction cost of $50,000 for each box constructed. A. What is the breakeven point for the number of luxury boxes in the new stadium? Each box has a construction cost of $50,000. Since cost varies with each box, this is variable cost and price of $100,000. There is no fixed cost. Profit = 100,000*x-50000*x = 50000x For break-even equate the profits to zero. We get 50000x=0 or x=0 The break even is zero units. 15 B. Preliminary drawings for the stadium show that the space is available for the construction of up to 50 luxury boxes. Promoters indicate that buyers are available and that all 50 could be sold if constructed. What is your recommendation concerning the construction of luxury boxes? What profit is anticipated? Since every unit has a profit, it is recommended to construct all the units, which can be sold. Recommended to construct 50 units. Profit = 50000*50=2,500,000 1. Let A be an event that a person's primary method of transportation to and from work is an automobile and B be an event that a persons primary method of transportation to and from work is a bus. Suppose that a large city P(A) =0.45 And P(B)= 0.35 A. Are events A and B mutually exclusive ? What is the probability that a person uses an automobile or a bus in going to and from work? A person can either use an automobile or a bus and cannot travel in both at the same time, hence the events are mutually

exclusive. Unless you believe that the person takes his car which breaks down on the way and he boards a bus to complete the journey. We need to calculate P(A U B) Now P(AUB) = P(A)+P(B)+P(AB) For mutually exclusive events P(AB)=0 P(AUB) = 0.45+0.35 = 0.80 B. Find the probability that a person's primary method of transportation is some means other than a bus. Here we need to calculate P(not B) = 1- P(B) = 1-0.35=0.65
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