TKI 162109 Operations Research 2

Homework III
Due date: 8 September 2016 (02)/ 9 September 2016 (01)

1. Classify the states of the Markov chains with the following transition probability matrices:
0 0.4 0.6 0
a. = 1 [ 0 0.5 0.5]
2 1 0 0

0 0.2 0 0 0.8 0
1 0 1 0 0 0
b. = 2 0 0.1 0.5 0 0.4
3 0.4 0 0 0.6 0
4 [ 0 0.3 0 0 0.7]

2. Let denote the demand for Canon Rebel cameras at Lenox Photo on day . Suppose that
1 , 2 , are i.i.d with
{1 = 0} = 0.3
{1 = 1} = 0.3
{1 = 2} = 0.4
{1 = } = 0 when > 2
Suppose that Lenox Photo uses an (s,S) inventory policy with s=1 and S=3. Orders may be
placed at the end of each business day; they are filled before the store opens the next
morning. If Lenox Photo does not have a Canon Rebel Camera in stock when a customer
arrives to purchase such a camera, the sale is lost.
The cost of losing a customer is $40. Placing an order for cameras costs $50+10 ($50 is a
fixed cost regardless the size of the order and $10 is the cost per ordered camera). The cost
of storing the camera is $5 per day per camera.
In the previous homework, you have done modeling this situation as a Markov Chain. Rewrite
the model and the transition probability matrix (make sure you use the right one).
a. Determine the steady state probabilities!
b. Determine the long run cost per unit time!
c. Would it be better for Lenox Photo to use the (s,S) inventory policy with s=2 and S=3?