Chapter 11 - Managing Capacity and Demand

CHAPTER QUIZ QUESTIONS

True/False
1. The use of a ski-resort hotel for business conventions during the summer is an example of using
the complementary service strategy. (F)
2. Overbooking is a strategy that can be used to smooth demand. (F)
3. The strategy of segmenting demand to reduce variation makes use of the fact that demand for a
service seldom is derived from a homogeneous source. (T)
4. Differential pricing is an attempt to make peak usage periods unattractive by imposing a penalty
on the consumer for using the service during peak periods. (F)
5. Yield management is the process of allocating a fixed perishable resource to several market
segments in the most profitable manner. (T)
6. The work shift-scheduling problem is important in service organizations that face a cyclic
demand for their services. (T)
7. Work shift scheduling attempts to deal with the service utilization problem by controlling the
demand for the service and partitioning it so that utilization is uniform. (F)
8. A drawback to increased consumer participation is the fact that service quality is no longer
completely under the control of the provider of the service. (T)
9. When peaks of activity are persistent and predictable such as meal times for restaurants, off-
duty personnel can be placed on standby to supplement regular employees. (F)
10. Cross training of employees as a strategy to increase flexibility is feasible only when there exist
tasks, the demands for which peak at different times. (T)
11. Time perishability of service capacity is a challenge for service managers because customers
demand immediate service. (F)
12. Yield management is a pricing and capacity allocation system that was developed by American
Airlines. (T)
13. Yield management is a strategy that manages both demand and capacity. (T)
14. An example of segmenting demand is seen when movie theaters offer matinee prices before 6:00
p.m. (F)
15. Expected loss for an overbooking reservation strategy would be calculated by multiplying the
loss for each no-show possibility and its probability of occurrence, and then adding the products.
(T)
16. The critical fractile is a cumulative probability of demand. (T)
17. Using part-time personnel at fast-food restaurants allows capacity to vary with demand. (T)
18. A disadvantage of yield management is that it cannot be implemented in real time. (F)

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Chapter 11 - Managing Capacity and Demand

19. Some restaurants use tables and chairs instead of booths to create more flexible capacity. (T)
20. SABRE is the name for American Airlines’ yield management system. (F)
21. Service capacity is defined in terms of an achievable level of output per unit time. (T)
22. Level demand and chase capacity are the two generic strategies for capacity management. (F)
Multiple Choice
1. The strategy of segmenting demand is feasible only when:
a. demand is not from a homogeneous source.*
b. demand is cyclic and predictable.
c. arrivals for service are random.
d. making appointments is impossible.
2. The purpose of differential pricing is to:
a. make peak period usage unattractive.
b. make off-peak usage attractive.*
c. charge customers according to their ability to pay.
d. adjust capacity to demand.
3. A good overbooking strategy should:
a. minimize the expected opportunity cost of idle service capacity.
b. balance the expected opportunity cost of idle service capacity and expected cost of turning
away customers who have reservations.*
c. minimize the expected cost of turning away reservations.
d. none of the above; services should try to avoid overbooking.
4. Bars that offer happy hours in the afternoon are using the strategy of:
a. creating adjustable capacity.
b. developing complementary services.
c. increasing customer participation.
d. promoting off-peak demand.*

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Chapter 11 - Managing Capacity and Demand

5. Which of the following is not a strategy for managing capacity?

a. Developing complementary services*
b. Using part-time employees
c. Forecasting demand
d. Scheduling shifts
6. Which of the following strategies is inappropriate for managing capacity and demand?
a. Smooth customer demand by offering price incentives.
b. Scheduling staff to meet variations in forecasted customer demand.
c. Decrease customer participation in the service process.*
d. Promoting off-peak use of facilities.
7. A cruise ship has available a certain number of rooms in each of 10 categories of appointments
ranging from a two-bunk inside cabin to a suite with an outside patio and indoor sitting area. If a
passenger requests a sailing date in which the desired cabin is sold out, which of the following
actions would be considered the least viable alternative for the cruise line?
a. Offer an upgraded cabin at a reduced price.
b. Attempt to steer the passenger to an available date.
c. Overbook the cabin.*
d. Offer a downgraded cabin with special privileges such as a $100 certificate for use in the
casino.
8. What one of the following is not a characteristic of yield management?
a. Capacity is relatively fixed.
b. There is one homogeneous customer class.*
c. The service is considered a perishable inventory.
d. Demand fluctuates yet is somewhat predictable.
9. Which one of the following four steps in "daily workshift scheduling" is out of order?
a. Forecast demand.
b. Convert to operator requirements.
c. Assign operators to shifts.*
d. Schedule shifts.

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Managing Capacity and Demand

10. Faced with variable demand and a perishable capacity, a service manager can smooth demand by:
a. using part-time help during peak hours.
b. scheduling workshifts to vary workforce needs according to demand.
c. increasing the customer self-service content of the service.
d. using reservations and appointments.*

11. Which one of the following is not a strategy to manage demand?

a. cross-training employees*
b. offering price incentives
c. developing reservation systems
d. partitioning demand
12. A health club offering a reduced rate membership for students to workout before 4:00 p.m. on
weekdays is:
a. promoting off-peak demand.*
b. partitioning demand.
c. using yield management.
d. offering price incentives.
13. Several approaches to demand management exist, but only _______ seeks to maximize revenue.
a. promoting off-peak demand
b. reservation systems
c. offering price incentives
d. yield management*
14. Which one of the following is not a characteristic of firms using yield management?
a. ability to segment their market
b. perishable inventory
c. variable capacity*
d. product sold in advance

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Managing Capacity and Demand

15. Which one of the following is not an example of the differential pricing policy?
a. weekend and night rates for long-distance telephone calls
b. difference in hospital fees for walk-in and scheduled services*
c. peak-load pricing by utility companies
d. none of the above
16. In using the critical fractile criterion P(d<x) = C u/(Cu + Co) for overbooking, the ‘d’ refers to:
a. cost of overestimating demand.
b. cost of underestimating demand.
c. number of rooms overbooked.
d. number of no-shows based on past experience.*
17. For a chase demand strategy which of the following does not have a high trade-off?
a. Employee utilization
b. Labor-skill level*
c. Labor turnover
d. Supervision required
18. A restaurant that features special lunchtime combo meals is providing all but one of the following
benefits?
a. Promotes off-peak demand*
b. Increases customer satisfaction
c. Decreases service times
d. Segment demand

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Chapter 11 - Managing Capacity and Demand

19. All but one of the following is an example of a yield management application:
a. RyerFirst
b. SABRE*
c. HIRO
d. Restaurant Catering Software
20. _________ variability is not one of the five sources of customer-induced variability.
a. Arrival
b. Capability
c. Effort
d. Demand*

21. ________ is not a strategy for reduction of customer-induced variability.

a. Adapt to customer skill levels*

b. Require reservations
c. Limit service breadth
d. Target customers based on capability

22. ________ is not a strategy for accommodating of customer-induced variability.

a. Provide generous staffing

b. Cross-train employees
c. Reward increased effort*
d. Do work for customers
23. A medical clinic has two doctors and each can treat 25 patients a day. The doctors see walk-in patients
whose arrival times cannot be controlled, and also patients who have made appointments. Knowing the
expected number of walk-ins per day, appointments are scheduled to utilize the doctors fully. The
following table gives the expected number of walk-ins for a particular week:
Day: Mon. Tue. Wed. Th. Fri.
Expected Walk-ins: 45 35 40 45 40
What is the total number of appointments that can be scheduled during this week?

a. 30
b. 35

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Chapter 11 - Managing Capacity and Demand

c. 40
d. 45*
24. ________ is not a characteristic appropriate for a yield management strategy.
a. Relatively fixed capacity
b. Steady demand*
c. Ability to segment markets
d. Products sold in advance
25. When yield management is implemented which one of the following does not result:
a. consumer surplus increases*
b. multiple prices are offered
c. capacity is more fully utilized
d. market for the service is segmented

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.