IE 305 Spring 2016

Homework #9, Due 1:10 pm on Friday, March 4, 2016

You must submit your homework via Blackboard by the due date and time. Please show your
work (e.g., the equations you use and/or the Excel formula). Each problem is worth 2 points.
1) The cost in dollars of operating a jet-powered commercial airplane is given by the
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following equation CO =kn v
where n is the trip length in miles, v is velocity
in miles per hour, and k

is a constant of proportionality. It is known that at 400 miles

per hour the cost of operation is $300 per mile. The cost of the passengers time CC

in

dollars is equal to $300,000 times the number of hours of travel. The airline company
wants to minimize the total cost of a trip which is equal to the cost of operating plus the
cost of the passengers time.
At what velocity should the trip be planned to minimize the total cost?
Hint: If you are finding this difficult to solve, arbitrarily choose a number of miles for the
trip length, but as you solve it, you should be able to see that the optimal velocity does
not depend on the value of n .
2) a) The selling price for an item is 50% greater than the variable cost per item. Fixed costs
are $50,000. What is the break-even sales?
b) Assume the variable and fixed costs remain the same from part a but the selling price
decreases by 10%. What is the new break-even sales?