IEOR 150

Homework #1
Due September 3, 2020

The first part of this assignment is designed to refresh your memory about prerequisite courses.

1. Draw a standard normal probability density function and cumulative distribution function.
Label the axes with a few numerical values.

2. If a random variable X has a Poisson distribution with mean = 2.0, what is

Prob [x £ 1]? Prob [x = 2]? Draw a rough histogram of the probability mass function for this
Poisson distribution. [Note: there are some tables in the Appendix of your textbook that may
help.]

3. You are working as a part-time technical consultant for three different companies that need
help with their web sites. Your agreement with each of the companies includes a monthly
retainer that covers payment for the first 5 hours of work each month. Your employers pay you
hourly for any work beyond the retainer. Data related to the agreements and the number of hours
that each company has requested this month appear in the table below.

Company Retainer Additional Hourly Rate Total Hours Requested

Webpage.com $150 $20 20

URLdesign $100 $25 15
HomePage $250 $15 30
Although you are not required to work at least 5 hours for each company, you risk losing your
contract if you do not, and you need the money to pay for rent and food. How should you
allocate your time if you can work only 50 hours this month? Formulate this problem and try to
solve it. Do you like the solution? Discuss additional constraints that you would impose if this
were a real situation, and how these constraints would change the solution.

a
4. d ∫ (a-x) f(x) dx where a is a constant and f(x) is a continuous function
da 0

5. What is a shadow price (also called dual multiplier or Lagrange multiplier)?

6. You and a friend are planning to go skiing in Jackson Hole, Wyoming during winter break,
and are planning to drive from Berkeley to Jackson Hole and back. A matrix of driving distances
among the relevant cities appears below.

(a) Draw a network representation of the relationships among the cities.

(b) Your friend suggests driving her parents’ large sport utility vehicle (SUV) that gets 10 miles
per gallon, and you expect that you will have to pay $4.50 per gallon for gas. Which route
should you take and how much will you have to pay for gas?

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 (c) Your friend points out that you forgot to consider the cost of hotels. It turns out that you
have a relative in Redding and your friend has a relative in Salt Lake City, so both of you can
stay there for free. Elsewhere enroute, you will have to pay about $75 per night for a shared
hotel room. (You may assume that hotels exist at many locations along the major highway
between any pair of cities. This is not exactly accurate, but it is accurate enough for practical
purposes.) Your friend’s parents will allow you to take their SUV on this trip only if you restrict
your daily driving to 560 miles per day (8 hours at 70 mile per hour). Which route will be least
expensive considering the cost of gas and hotels?

B: Berkeley S: Sacramento, CA
I: Idaho Falls, Idaho SL: Salt Lake City, Utah
JH: Jackson Hole, Wyoming
R: Redding, California

B I JH R S SL

B 0 748 ?? 195 75 728

I 0 113 811 837 208

JH 0 924 931 278

R 0 163 811

S 0 653

SL 0

7. We would like to minimize the following function:

f(x,y) = y3 + xy – x2

subject to x ≥ 0 and y ≥ 0. Is it possible to find the optimal values of x and y by setting

∂f(x,y)/∂x = 0 and ∂f(x,y)/∂y = 0? If so, state the optimal solution. If not, explain why not.

8 X and Y are random variables. X has a normal distribution with mean µx and variance sx2. Y
has a normal distribution with mean µy and variance sy2. What is the distribution of X + 3Y if
X and Y are independent?

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**9. An unreliable machine has four states: excellent, good, bad, and broken. The machine
operator records the state of the machine at the end of every shift. The machine never improves
its state unless repair work is done. The current policy is for repair work to be done only when
the machine is either bad or broken. When repair takes place, the machine either is returned to
the excellent state or stays in the current (bad or broken) state. He has observed that in one shift,
the machine that starts out in excellent condition will stay in that state with probability 0.3, and it
goes from excellent to good with probability 0.5, and from excellent to bad with probability 0.2.
It also goes from good to bad with probability 0.3, from good to broken with probability 0.2,
from bad to excellent (i.e., fully repaired) with probability 0.8, from broken to excellent with
probability 0.6. What is the Markov transition matrix? What is the long-run (steady state)
probability that the machine is in the excellent state?

10. Find a real inventory control problem and find out what factors are considered in deciding
how much to purchase and when. Write a two-paragraph description of the situation, including
the name of the company or organization and the names of the people to whom you spoke, the
nature of the product, characteristics of the customers, etc. Include information on the company
or organization where the problem occurs, the nature, price and cost of the product,
characteristics of the customers, etc. Try to estimate some of the relevant costs and support your
estimates. [Note: the grading will consider organization, clarity and grammar. I recognize this
question may be difficult to complete under Covid restrictions but you may find it helpful to go
to a small and/or family-owned establishment where the manager or supervisor on site would be
able to answer most of your questions. You are welcome to conduct this investigation remotely,
if necessary, but there is considerable value in seeing the products being sold unless you are
already familiar with them.]

11. Problem #25, p. 291 of Nahmias & Olsen

12. Problem #34, p. 242 of Nahmias & Olsen, but with the following modifications and
clarifications:

(a) Berry Computer is considering outsourcing to a contract manufacturer (i.e., a separate

company). Berry must pay for the circuit boards when the contract manufacturer ships
them, not when they arrive.
(b) For this problem, it is useful to think of pipeline inventory as in-transit inventory.
(c) The overseas setup costs are for customs clearance. Transportation costs are paid by the
supplier.
(d) The local production lead time is one week.
(e) In either location, the circuit board is produced on a production line that can produce
4000 boards per week.
(f) The overseas production lead time is also one week, but transportation, customs
clearance, and testing altogether take another three weeks.
(g) The inventory holding cost rate is 40%.

** If you have not learned this topic before, try to do the best you can. Find a reference book on
the topic and list the title and author of a book (or books) where you would be able to find these
topics.