ISYE 3232B Fall 2013 Test 1 - 01

I,
, do swear that I abide by the Georgia Tech Honor Code. I understand
that any honor code violations will result in a failure (an F).
Signature:
You will have 1 hour 15 minutes.
This exam is closed book and closed notes. Calculators are not allowed. No scrap paper is allowed.
Make sure that there is nothing on your desk except pens and erasers.
If you need extra space, use the back of the page and indicate that you have done so.
Do not remove any page from the original staple. Otherwise, there will be 3 points off.
Show your work. If you do not show your work for a problem, we will give zero point for the problem
even if your answer is correct.
We will not select among several answers. Make sure it is clear what part of your work you want
graded. If two answers are given, zero point will be given for the problem.
Throughout, you will receive full credit if someone with no understanding of probability, set theory,
and calculus could simplify your answer to obtain the correct numerical solution. However, you must
give a numerical answer where asked.
Some formula that you may need:
For a newsvendor problem, the optimal quantity that maximizes the expected profit is y such that
c +p c
y = min{y : F(y) cpp +puu +hv } where F() is the CDF of demand.
The Kingmans formula: When A represents inter-arrival times and S represents service times,
Wq = m

c2a + c2s
2
where c2a = A 2
1 2
E[A]

and

c2s =

An exponential distribution with rate has mean 1/ and variance 1/ 2 .

S2
.
E[S]2

1. (20 points) A store owner plans to sell a fashion dress (to be treated as a perishable product) at $100 a
piece. Before the season starts, she orders dresses at $30 a piece. Based on her prediction, the demand
for the dress during the season follows the following discrete distribution:
x
Pr(D = x)

80
.2

100
.3

120
.4

140
.1

Unsold dresses will be discounted at $15 a piece after the season.

(a) (5 points) If the store orders 105 dresses, what is the expected number of left-over dresses?

(b) (5 points) How many dresses should the store owner order at the beginning of the season in order
to maximize her expected profit for the season? (A numerical answer is expected.)

(c) (10 points) What is the maximum expected profit that the store can make?

2. (5 points) According to The Goal, what is the throughput of a firm?

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3. (30 points) A company plans to make one last production run of special chemical for a product for
its warranty service. The cost of setting up for producing the chemical is $300, each gallon costs $10
to produce. However, if additional gallons are needed beyond what has been produced, they will be
purchased at $20 per gallon. Chemical remaining at the end of the warranty period cost $5 per gallon
to be removed. The demand for chemical during the warranty is a normal distribution with mean 100
gallons and variance 400 gallons2 .
(a) (8 points) What is the optimal gallons of chemical to produce in order to minimize the total
expected cost? (A numerical answer is expected.)

(b) (10 points) Suppose that 80 gallons were given (for free) from another production site. What
would be the optimal production quantity and expected cost if theR company decides to produce?
Denote the pdf of normal
as f (m) and leave yourRanswer with . However, you must clearly
R
state the interval of (i.e., the values of a and b in ab ). For example, you can leave your answer
R
R
as 100*5 + 10
(30 m) f (m)dm + 115 (m 30) f (m)dm.

(c) (10 points) Suppose that 80 gallons were given (for free) from another production site. What
would be the expected cost if the company
decides not to produce? Denote the pdf of normal
R
R
as f (m) and leave your answer
with . However, you must clearly state the interval of
(i.e.,
Rb
R
the values of a and b in a ). For example, you can leave your answer as 100*5 + 10 (30
R
m) f (m)dm + 115 (m 30) f (m)dm.

(d) (2 points) Let E[C1 ] represent the expected cost for part (b) and E[C2 ] represent the expected cost
for part (c) when 80 gallons are given. Under what condition do we produce? State the condition
in terms of E[C1 ] and E[C2 ].
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4. (30 points) A production line has two machines, Machine A and Machine B, that are arranged in
series. Each job needs to processed by Machine A first. Once it finishes the processing by Machine
A, it moves to the next station, to be processed by Machine B. Once it finishes the processing by
Machine B, it leaves the production line. Each machine can process one job at a time. An arriving
job that finds the machine busy waits in a buffer. (The buffer sizes are assumed to be infinite.) The
processing times for Machine A are iid having normal distribution with mean 4 minutes and variance
32 minutes2 . The processing times for Machine B are iid, having exponential distribution with mean 2
minutes. Assume that the interarrival times of jobs arriving at the production line are iid with constant
5 minutes.
(a) (5 points) What is the utilization of Machine A? What is the utilization of Machine B?

(b) (5 points) What is the throughput of the production system? (Give units of your answer clearly.)

(c) (10 points) What is the average waiting time for Machine A, excluding the service time? (Give
units of your answer clearly.)

(d) (5 points) It is known the average time in the entire production line is 30 minutes per job. What
is the long-run average number of jobs in the entire production line?

(e) (5 points) Suppose that the mean interarrival time is changed to 1 minute. What is the throughput
of the production system? (Give units of your answer clearly.)

5. (15 points) A store sells a particular product. The weekly demands for the product are iid random
variables with the following distribution:
d
0 1 2 3
Pr{D = d} .3 .4 .2 .1
The store is closed during the weekends. Unsold items at the end of a week can be sold again the
following week. Each Friday evening if the number of remaining items is at most 4 (i.e., 4), the
store orders enough items to bring the total number of items up to 7 on Monday morning. Otherwise,
do not order. The ordered items reach the store before the store opens on the Monday morning.
Assume that any demand is lost when the product is out of stock. Let Xn be the number of items in
stock at the beginning of the nth week. The store starts with 7 items at the beginning of this week.
(a) (5 points) Represent Xn+1 as a function of Xn and Dn (or Dn+1 ) where Dn is the demand for the
nth week to show that X = {Xn : n = 0, 1, . . .} is a discrete time Markov chain.

(b) (10 points) Define its state space, initial distribution, and the transition probability matrix.