1) An airline begins selling tickets for flight 1087 thirty days prior to departure. The capacity of the plane is 175 passengers. Based on past experience, the firm sells on average six seats per day. After Day 5, if the number of cumulative tickets sold are within plus-or-minus five seats of expected tickets sold, no pricing actions are taken; however, if sales are outside of the range, fares are adjusted either up or down accordingly. If the total number of tickets sold on Day 16 is 100, what should the airline do? If the total number of tickets sold on Day 21 is 119, what should the airline do? Upon departure, the flight is expected to be overbooked by how many seats?
2) As shown in the figure, railroads J and K both operate between cities N and O and aggressively compete for freight, while railroad L operates exclusively between cities O and P. It costs each railroad $500 to haul product from one city to the next. It costs the seller $2000 to manufacture the product, and the buyer is willing to pay $5000 for the product. Assume that the producer pays for the transportation service.
a. Based on the figure, if the producer is located at N,how much should it expect to pay for rail service if the buyer is located at O?
b. If a parallel merger occurs, how much should theproducer in N expect to pay for rail service to O?
c. If an end-to-end merger (instead of a parallel merger)occurs, how much should the producer in N expect to pay for rail service to O?
d. Based on the figure, if the producer is located at N,how much should it expect to pay for rail service if the buyer is located at P(instead of O)?
e. If a parallel merger occurs, how much should theproducer in N expect to pay for rail service to P?
f. If an end-to-end merger (instead of a parallel merger)occurs, how much should the producer in N expect to pay for rail service toP?
3) The BaxleyCompany produces an item at $60 per unit. 2500 miles away, the DelranCompany produces the same item at $75 per unit. If it costs Baxley $1.75per mile and it costs Delran $0.43 per mile to ship the item, where is themarket boundary in miles from Baxley? What is the landed cost per unitfor each company at Adel, a city located exactly halfway between Baxley andDelran?
4) Consider the following four shipments from different companies: 12,000 pounds, 17,000 pounds, 21,000 pounds, and 25,000 pounds. The standard LTL charge is $.17 per pound, while the prevailing TL rate is $.11 per pound (with a 30,000 pound minimum). A freight forwarder charges $.15 per pound with a 15,000 pound minimum. What is the minimum transportation cost for each shipment?
5) A petroleum driller has two options for shipping 37500 barrels of crude oil 1000 miles from Williston, ND to Whiting, IN. Option 1 is rail; option 2 is pipeline. Both carriers want the business and plan to aggressively compete with one another for the freight.
Option 1: 50 tank cars are required to handle the shipment with no backhaul opportunities available. Variable costs are $1.10 per mile for a loaded car and $.40 per mile for an empty car. Rail rates are currently $2000 per car.
a. At the current rate, how much of a contribution to fixed costs and profits does the carrier earn by handling this shipment?
b. What is the lowest rate per car that the railroad would charge?
Option 2: the pipeline charges $1.60 per barrel to transport crude oil between the two locations. Variable costs are $.90 per barrel.
c. At the current rate, how much of a contribution to fixed costs and profits does the pipeline company earn by handling this shipment?
d. What is the highest rate per barrel that the pipeline could charge to be assured of getting the business?
e. How high would the pipelines backhaul cost have to get before its rate becomes uncompetitive relative to the railroads rate?
6) A coatings company in Wilmington, DE received 30 barrels of bronze powder, each weighing 80 pounds, from its supplier in Williamsport, PA. Based on the attached rate information (PDF), what is the transportation cost for this shipment?
