ECON 15A Lecture 1: Discussion 2
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Q2 (40 points)
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Sese Trucking owns two types of trucks: normal cargo (FS) and car carriers (CC). Sese has 100 drivers for FS trucks and 50 drivers for CC. Drivers are not interchangeable (i.e., an FS driver cannot drive a CC and vice versa). Each driver can deliver one load a day. The discrete demand distributions for daily loads are given below:
FS |
Loads |
Prob. of Occurrence |
|
120 |
0.2 |
|
100 |
0.8 |
a) What are the expected number of loads handled by Sese for FS and CC respectively?
b) What is the expected utilization for FS and CC drivers respectively?
Sese decides to lease 20 FS trucks and 10 CC trucks (and their drivers) on a daily basis in addition to its own fleet
c) What are the expected loads Sese can handle for FS and CC respectively now?
d) What are the expected lost sales (loads Sese cannot handle) for FS and CC respectively now?
e) What is the expected capacity utilization of the total fleet?
f) Sese always uses its own trucks and drivers first before using the leased fleet. What is the expected number of unused trucks in the leased fleet?
Since the leased fleet did not meet Sese's expectations on quality and handling, Sese decided to stop leasing. Sese decided to invest instead in making its trucks totally flexible and retraining its drivers on both types. (i.e., any truck and driver in Sese's fleet can now handle both FS and CC)
g) What is the expected capacity utilization of Sese's fleet now?
h) What are the expected lost sales (loads Sese cannot handle) of FS and CC now?
Determinates of Price Elasticity
K-Mart-- Determinants of demand elasticities
1. Generally, the elasticity of demand for a product will be greater when there are:
(a) the larger number of substitutes,
(b) the greater proportion of income an item takes,
(c) the less the item is considered to be a necessity, and
(d) the longer length of time allowed for adjustment to change the price of the good.
2. K-Mart, at its web-site, K-Mart.com posts a weekly sales circular on selected merchandise, organized by department. It must be concluded that the demand for these products are elastic. The decrease in price will increase total revenue. Check out this week's specials and, select ten items.
- Answer these questions:
- How many specials score 1 point (or 1 yes) for meeting the criterion of each determinant above.
- Which specials score 4 points (or 4 yes) for meeting the criterion of each determinant above?
- Which specials score 0 (or no yes)?
- Why would K-Mart include any item that scored less than a 3 (or less than 3 yes) ?
If the product meets all the determinates of elasticity the more elastic the product. Such as a diamond necklace. So the necklace may go on sale or the store may offer unlimited cleaning of the diamonds or storage to encourage people to buy the necklace.
Whereas a product that meets a few of the determinates of elasticity are considered necessities.
For Example: Do not use any of my products.
Determinates | Dial Body Soap | Tide Laundry Det. | Cigarettes | Generic Heart Medication |
Does the product have a large number of substitutes? | Yes/1pt. | Yes/1pt. | 0 | 0 |
Does the product require a large proportion of your income? | 0 | 0 | 0 | 0 |
Is the product a necessity? | 0 | 0 | Yes/1pt. | Yes/1pt. |
Do you take a long time to think about buying the product? | 0 | 0 | 0 | 0 |
Total for Each Product | 1 | 1 | 1 | 1 |