ÉCOLE DE GESTION TELFER SCHOOL OF MANAGEMENT

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ADM 3305 – INDIVIDUAL ASSIGNMENT 1

Due date: Wednesday, September 29 at 11:59 pm (Brightspace).

Instructions:

• Whenever you present a model, please make sure that: 1) all model components are clearly
defined in words before being used; 2) a readable printout of the model, its solution, and
any useful additional information are included whenever you use a computer. It may be a
good idea to annotate this printout, so as to make it easier to understand. Also, when solving
a numerical example, present and explain the solutions in the same terms the problem is
stated. Use tables or graphical representations when appropriate and interpret solutions in
managerial terms.
• The data for this homework assignment can be found in the file demand.xlsx.
• Your answers must be uploaded to Brightspace in one pdf file. You may upload several
files, but only the most recent submission prior to the deadline will be graded. This single
file must include all your answers, including screen shots of your model(s). You must start
each question on a different page and answer the questions in order. Students who fail
to follow these instructions will be penalized with 10% of the marks (for example, if the
assignment is marked out of 50, the penalty will be 5 marks). You must also upload your
implementation files if applicable.
• Remember to include your integrity statement. Assignments submitted without a signed
integrity statement will not be graded.

Question 1 – Data Generation

Use a linear congruential generator with parameters a = 5, c = 9, m = 128 and Z0 = 71 to

generate a series of 30 numbers uniformly distributed in the interval [0,1].

a) Compute and compare the mean and variance of these numbers with those obtained from
the expected theoretical Uniform(0,1) distribution (continuous uniform). Explain any
differences.

b) The interest rate for a capital project is unknown. An accountant has estimated that the
minimum interest rate will be between 2% and 5% within the next year. The accountant
believes that any interest rate in this range is equally likely. Using the uniform random
numbers from part a) generate 30 independent interest rate values for this situation.
Question 2 – Hotel Revenue Management

A hotel has 150 rooms with standard queen-size beds and two rates: a full price of $200 and
a discount price of $120. To receive the discount price, a customer must purchase the room
at least two weeks in advance (this helps to distinguish between leisure travelers, who tend
to book early, and business travelers who value the flexibility of booking late). You may
assume that if a leisure traveler is not able to get the discount rate, she will choose to book
at another hotel.

To help make decisions regarding a particular Monday night, the hotel manager has put
together a dataset with the demand by business travellers for multiple Mondays. The data
set is called “demand.xlsx”.

a) Compute the mass probability function and the cumulative probability function for the
number of business customers requesting a room for a Monday night.

b) Use Monte Carlo simulation in MS Excel to determine how many rooms should be
protected from sale at a discount price. This number is the protection level for full price
rooms. Assume that all unprotected rooms will be booked by leisure travellers at a
discount rate. Use MS Excel RAND() function to generate numbers uniformly distributed
in the interval [0,1] and then the probability functions from part a) to generate random
demand by business travellers.

Base your decision on 60 replications and please clearly justify your answer based on the
point estimates and confidence intervals associated with the revenues associated with
different decision values. Consider a minimum of six decision values.

c) Determine the booking limit for discount rooms.

d) Suppose that for a short time, the hotel's forecast of business customer demand is biased
upward: the forecast is too high and fewer business customers appear, on average.
Qualitatively describe in one or two sentences the economic consequences of using the
protection level and booking limit derived in parts b) and c).

e) Suppose that for a short time, the hotel's forecast of business customer demand is biased
downward: the forecast is too low and more business customers appear, on average.
Qualitatively describe in one or two sentences the economic consequences of using the
protection level and booking limit derived in parts b) and c).

f) Now use the critical fractile approach discussed in class and the probability functions
from part a) to determine the protection level for full price rooms and the booking limit
for discount rooms that maximize the expected revenue for Monday night. Show your
computations and explain any differences with respect to your answers to questions b)
and c) above.