Boazii

University
ETM594 Supply Chain Management
Assignment 3

NEWTV is a television station that has 25 thirty-second advertising slots each
evening. It is late December and the station is selling advertising for Sunday,
March 4. They could sell all slots right now for $4000 each but, because on this
particular Sunday there will be the Oscar Ceremony, there will be an opportunity
to sell slots during the week right before March 4 for a price of $10000 each. For
now, assume that a slot not sold in advance and not sold during the last week is
worthless to NEWTV. To help make this decision, the marketing has created the
following probability distribution for last minute sales:

Number of Probability
Slots, x of Exactly x
slots are
Sold
8 0.00
9 0.05
10 0.10
11 0.15
12 0.20
13 0.10
14 0.10
15 0.10
16 0.10
17 0.05
18 0.05
19 0.00

a. How many slots should NEWTV sell in advance?
b. In practice, there are companies willing to place standby advertising
messages: if there is an empty slot available (i.e., this slot was not sold in
advance or during the last week), the standby message is placed into this
slot. Since there is no guarantee that such a slot will be available, standby
messages can be placed at a much lower cost. Suppose that NEWTV
charges for a standby message $2500. Now how many slots should
NEWTV sell in advance?
c. Suppose NEWTV chooses a booking limit of 10 slots on advance sales. In
this case, what is the probability that there will be slots left over for
standby messages?
d. One problem with booking in December for March 4 is that advertisers
often withdraw their commitment to place the ad. Because of such
opportunistic behavior by advertisers, media companies usually
overbook advertising slots. NEWTV estimates that in the past the number
of withdrawn ads has the following distribution:

 Ads Probability
Withdrawn

1 0.034
2 0.086
3 0.143
4 0.179
5 0.179
6 0.149
7 0.107
8 0.067
9 0.037
10 0.019

Assume that each withdrawn ad can still be sold at a standby price of
$2500 although the company misses the opportunity to sell these slots at
$4000 a piece. How many slots (at most) should be sold?