Assignment: End-of-Chapter Questions
For questions 1 through 3, you need to choose the correct facility location method, i.e., huff retail location, the center of gravity, or cross-median. Remember the center of gravity and cross-median approaches do not consider competition and assume distances can be calculated using the Euclidian and Metropolitan methods, respectively.
1. Find the location of the new restaurant that is built in a rural area. (Do not consider competition.)
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Destination
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Coordinates(x,y)
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Weights
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A
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3,5
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20
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B
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6,8
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10
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C
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2,7
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15
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D
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4,5
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15
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2. You have been asked to help locate a catering service in the central business district of a city. The locations of potential customers on any xy coordinate grid are , , , , and . The expected demand is weighted as , and . Recommend a location for the catering service that will minimize the total weighted distance traveled to serve the customers. (Do not consider competition. Note that you need to choose the correct facility location method, i.e. huff retail location, center of gravity, or cross-median. Remember center of gravity and cross-median do not consider competition, and assume distances can be calculated using the Euclidian and Metropolitan method, respectively.)
3. A locally owned department store samples two customers in each of the five geographic areas to estimate customer spending in its home appliances department. It is estimated that these customers are a good sample of the 10,000 customer the store serves. The number of customers in each area is C1=1,500, C2=2,500, C3=1,000, C4=3,000, and C5=2,000. It is found that the consumers have the following budgets in dollars for home appliances per year: B1=125, B2=87.50, B3=125, B4=110, B5=122.5.
Bull's Eye, a chain department store, plans onopening a branch in a shopping complex nearby. The Bull's Eye branch is three times larger than the locally owned store. The travel time in minutes from the five areas to the two stores (j=1 for the locally owned, j=2 for Bull's Eye) are T11=20, T12=15, T21=35, T22=20, T31=30, T32=25, T41=20, T42=25, T51=25, and T52=25. Use the Huff Retail Location model to estimate the market share in the home appliance section of each store assuming that λ=1.
4. In order to raise capital, Flyway Airlines is considering selling 100 000 shares of company stock, currently selling at $10 per share. Flyway is facing two important situations that may influence the future price of the stock: a lawsuit that could decrease the value of the stock and a government contract award that could increase the value of the stock. Flyway's chief financial analyst predicts that within six months one of the following events will occur:
E1: no lawsuit, get contract-shares rise to $20.
E2: lawsuit, get contract-shares rise to $16.
E3:: no lawsuit, no contract-shares remain the same.
E4: lawsuit, no contract-shares drop to $8.
Flyway is trying to decide among the following three decisions:
D1: Sell all the stocks immediately.
D2: Sell all the stocks in six months after one of the above events has occurred.
D3: Sell one half of the shares now and one half in six months after one of the above events has occurred.
Parts a and bare a skill-extending problem that require you to think beyond what you learned in class. Hence, they are optional and for extra credit. You can use the tables given in parts a and b to solve parts c-g.
a. Construct the payoff table for Flyway's problem, based only on the above information.
Unlike the in-class exercises, the payoffs for each combination of decision alternative and state of nature is not given. You will need to calculate them. The solution is below, however, you need to show how you can get to those numbers to receive extra credit.
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Alternatives
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Investment:
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No Lawsuit/Contract
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Lawsuit/Contract
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No Lawsuit/No Contract
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Lawsuit/No Contract
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Sell All
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$1,000,000
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$1,000,000
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$1,000,000
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$1,000,000
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Sell All in 6 months
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2000000
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1600000
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1000000
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800000
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Sell 1/2 now
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$1,500,000
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$1,300,000
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$1,000,000
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$900,000
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b. Assume the original payoff table is in effect. Statistical analysis of the events above has led to the conclusion that the probability of obtaining the government contract is 0.75 and the probability of the lawsuit is 0.55. The two outcomes are statistically independent. Determine the optimal decision using expected monetary values. Once again, the solution is below, you need to show your work. (It may be time to take out your BUS 201 material. :)
If the two outcomes are independent, then the event probabilities are:
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E1
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E2
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E3
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E4
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0.3375
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0.4125
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0.1125
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0.1375
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c. Determine the decision for a risk-taker.
d. Determine the decision for a risk-averse person.
e. Determine the decision for a risk-neutral person.
f. Determine the decision for a person with a coefficient of optimism of 0.4.
g. How much is perfect information worth to Flyway?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.