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Problem 1

Bharatiya Ghar (BG) is an Indian real-estate development company that have just finished building a
hotel in Goa. BG’s hotel has 150 luxury rooms, and the company needs to decide on the long-term
price levels to be charged for the hotel rooms. In particular, BG considers a potential price level of
₹10000 per room per day. Based on the analysis of the market research and past occupancy data, the
company estimates that if it uses the ₹10000 price level, the daily demand for rooms at the hotel D
will be distributed as a Poisson random variable with parameter 147. The company assumes that if
demand for rooms on a particular day exceeds 150, all extra room requests (above 150) will be lost to
another hotel. Use a simulated based approach to find out the estimates for the expected value and
the standard deviation of the total daily revenue?

Problem 2

The owner of a ski apparel store in Winter Park, CO, must decide in July how many ski jackets to order
for the following ski season. Each ski jacket costs $54 each and can be sold during the ski season for
$145. Any unsold jackets at the end of the season are sold for $45. The demand for jackets is expected
to follow a Poisson distribution with an average rate of 80. The store owner can order jackets in lot
sizes of 10 units.

a) How many jackets should the store owner order if she wants to maximize her expected profit?
b) What are the best-case and worst-case outcomes the owner might face for this product if she
implements your suggestion?
c) How likely is it that the store owner will make at least $7,000 if she implements your
suggestion?
d) How likely is it that the store owner will make between $6,000 to $7,000 if she implements
your suggestion?

Problem 3

Lisa Pon has just been hired as an analyst in the corporate planning department of Hungry Dawg
Restaurants. Her first assignment is to determine how much money the company needs to accrue in
the coming year to pay for its employees’ health insurance claims. Hungry Dawg is a large, growing
chain of restaurants that specializes in traditional southern foods. The company has become large
enough that it no longer buys insurance from a private insurance company. The company is now self-
insured, meaning that it pays health insurance claims with its own money (although it contracts with
an outside company to handle the administrative details of processing claims and writing checks).

The money the company uses to pay claims comes from two sources: employee contributions (or
premiums deducted from employees’ pay checks), and company funds (the company must pay
whatever costs are not covered by employee contributions). Each employee covered by the health
plan contributes $125 per month. However, the number of employees covered by the plan changes
from month to month as employees are hired and fired, quit, or simply add or drop health insurance
coverage. A total of 18,533 employees were covered by the plan last month. The average monthly
health claim per covered employee was $250 last month.

By analysing historical data, we determined that the change in the number of covered employees from
one month to the next is expected to vary uniformly between a 3% decrease and a 7% increase.
Further, assume that we can model the average monthly claim per covered employee as a normally
distributed random variable with the mean increasing by 1% per month and a standard deviation of
approximately $3.