Table Of Content

Overview of Applications by Discipline ECONOMICS Estimating sensitivity of demand to price 45–54 Estimating demand for products 904 Pricing problems 361–377, 431–437 Subway token hoarding 772 Assessing a utility function 526–528 FINANCEANDACCOUNTING Cost projections 27–31 Bidding for a government contract 485–491, Finding a breakeven point 31–39 623–627, 653–657 Calculating NPV for production capacity Investing with risk aversion 527–531 decision 55–60 Land purchasing decision 548 Portfolio management 177–182, 353–354, Liquidity risk management 621–623 401–406, 452–455, 660–662 Estimating warranty costs 627–632 Pension fund management 182–186 Retirement planning 652–657 Financial planning 215–219, 647–652 Modeling stock prices 657–658 Arbitrage opportunities in oil pricing 220–224 Pricing options 658–664 Currency trading 225 Investing for college 710 Capital budgeting 299–305 Bond investment 711 Estimating stock betas 407–412 Revenue management at casinos 841–842 Stock hedging 419–420 Estimating costs 853–860, 862–870 New product development 475–476, 547, 643–647, Forecasting overhead costs 905 692–699 HUMANRESOURCESAND HEALTH CARE Fighting HIV/AIDS 21–22 Selecting a job 16-22–16-31 DEA in the hospital industry 188–194 Drug testing for athletes 506–513 Assigning MBA students to teams 474 MARKETING Determining an advertising schedule 135–144, Classifying subscribers of the WSJ 461–464 383–387, 16-3–16-10, 16-18–16-21 New product marketing 514–523, 531–532 Estimating an advertising response function 379–383 Valuing a customer 667–671 Retail pricing 431–437 Reducing churn 671–676 Estimating a sales response function 448–451 Marketing and selling condos 676–680 Cluster analysis of large cities 456–460 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. MISCELLANEOUS Investment in U.S. Space Systems 293–294 Prioritizing projects at NASA 16-1–16-2 Biotechnical engineering 549–550 OPERATIONS MANAGEMENT Queueing problems 4–7, 788–806, 811–814, Cutting stock problems 335–339 817–830 Plant expansion and retooling 350–351 Ordering problems (newsvendor) 23–27, 573–610, Selecting telecommunication carriers 352 619, 736–739 Telephone call processing 836–837 Ordering with quantity discounts 40–44 Railway planning 421–422 Manufacturing operations 67–68, 329–334 Loading a gas truck 438–442 Product mix problems 70–94, 100–107, 171–176, Traveling salesperson problem 464–467 306–318 Determining trade–off between profit Production scheduling 108–117, 152–162, and pollution 16-15–16-18 442–447, 620, 632–637 Airline boarding strategies 551–552 Production, inventory management 133–134, Deming’s funnel experiment 637–641 16-37–16-39 Global supply chain decisions 713–714 Scheduling workers 145–151 Economic order quantity models 718–734 Aggregate planning 152–162 Ordering decisions with demand uncertainty Gasoline, oil blending 163–170, 212–214 740–754 Logistics problems 227–228, 229–240, 248–256 Production planning in fashion industry 755–760 Assigning workers to jobs 241–243 Managing supply chain inventory 760–764 Assigning school buses to routes 243–247 Reducing work in progress 773–774 Finding a shortest route 257–261 Operations at banks 838–839 Equipment replacement 261–266 Scheduling multiple projects 15-1–15-2, Airline crew scheduling 267–272 15-25–15-28 Airline flight scheduling 273–280 Project scheduling with CPM 15-8–15-24, Global manufacturing and distribution 288–289 15-30–15-34 Motor carrier selection 290–292 Forecasting problems 848–853, 879–883, Airline hub location 319–324 885–895, 906 Locating plants and warehouses 324–328, 388–392 SPORTS AND GAMES Rating NFL teams 393–397 Playing craps 682–685 NCAA basketball tournament 685–689 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 4 TH EDITION Practical Management Science Wayne L.Winston Kelley School ofBusiness,Indiana University S. Christian Albright Kelley School ofBusiness,Indiana University With Cases by Mark Broadie Graduate School ofBusiness,Columbia University Lawrence L. Lapin San Jose State University William D.Whisler California State University,Hayward Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Practical Management Science, ©2012, 2009South-Western, Cengage Learning Fourth Edition ALL RIGHTS RESERVED. No part of this work covered by the copyright Wayne L. Winston, herein may be reproduced, transmitted, stored, or used in any form or by S. Christian Albright any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web distribution, Vice President of Editorial, Business: information networks, or information storage and retrieval systems, except Jack W. Calhoun as permitted under Section 107or 108of the 1976United States Copyright Editor-in-Chief: Act, without the prior written permission of the publisher. Joe Sabatino For product information and technology assistance, contact us Senior Acquisitions Editor: at Cengage Learning Customer & Sales Support, 1-800-354-9706 Charles McCormick Jr. Senior Developmental Editor: For permission to use material from this text or product, Laura Bofinger Ansara submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to Editorial Assistants: [email protected] Nora Heink, Courtney Bavaro Marketing Communications Manager: ExamView®is a registered trademark of eInstruction Corp. Windows Libby Shipp is a registered trademark of the Microsoft Corporation used herein under license. Macintosh and Power Macintosh are registered Marketing Manager: trademarks of Apple Computer, Inc. used herein under license. Adam Marsh Senior Content Project Manager: Library of Congress Control Number: 2011922240 Holly Henjum Student Edition PKG ISBN-13: 978-1-111-53131-7 Media Editor: Student Edition PKG ISBN-10: 1-111-53131-5 Chris Valentine Student Edition ISBN-13: 978-1-111-53127-0 Student Edition ISBN-10: 1-111-53127-7 Senior Buyer, Manufacturing: Miranda Klapper South-Western Production Service: 5191 Natorp Boulevard MPS Limited, a Macmillan Company Mason, OH 45040 Art Director: USA Stacy Jenkins Shirley Cover Designer: Cengage Learning products are represented in Canada by Lou Ann Thesing Nelson Education, Ltd. Cover Image: iStock Photo For your course and learning solutions, visit Rights Acquisitions Specialist: www.cengage.com John Hill Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America 1 2 3 4 5 6 7 15 14 13 12 11 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. To Mary,my wonderful wife,best friend,and constant companion And to our Welsh Corgi,Bryn,who still just wants to play ball S.C.A. To my wonderful family Vivian,Jennifer,and Gregory W.L.W. Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. About the Authors S.Christian Albright got his B.S. degree in Mathematics from Stanford in 1968 and his Ph.D. degree in Operations Research from Stanford in 1972. Since then he has been teaching in the Operations & Decision Technologies Department in the Kelley School of Businessat Indiana University. He has taught courses in management science, computer simulation, and statistics to all levels of business students: undergraduates, MBAs, and doctoral students. He has also taught courses on database analysis to theU.S. Army. He has published over 20 articles in leading operations research journals in the area of applied probability, andhe has authored several books, including Practical Management Science, Data Analysis and Decision Making, Data Analysis for Managers, Spreadsheet Modeling andApplications, andVBA for Modelers.He jointly developed StatTools,a statistical add-in for Excel, with the Palisade Corporation. His current interests are in spreadsheet modelingandthedevelopmentofVBAapplicationsinExcel,aswellasWebprogramming withMicrosoft’s.NETtechnology. On the personal side, Chris has been married to his wonderful wife Mary for 40years. They have one son, Sam, who is currently finishing a law degree at Penn Law School. Chris has many interests outside the academic area. They include activities with his family (especially traveling with Mary), going to cultural events at Indiana University, playing golf and tennis, power walking, and reading. And although he earns his livelihood from statistics and management science, his realpassion is for playing classical music on the piano. Wayne L.Winstonis Professor of Operations & Decision Technologies in the Kelley School of Business at Indiana University, where he has taught since 1975. Wayne received his B.S. degree in Mathematics from MIT and his Ph.D. degree in Operations Research from Yale. He has written the successful textbooksOperations Research: Applications and Algorithms, Mathematical Programming: Applications and Algorithms, Simulation Modeling Using @RISK, Data Analysis and DecisionMaking, andFinancial Models Using Simulation and Optimization. Wayne has published over 20 articles in leading journals and has won many teaching awards, including the schoolwide MBA award four times. He has taught classes at Microsoft, GM, Ford, Eli Lilly, Bristol-Myers Squibb, Arthur Andersen, Roche, PriceWaterhouseCoopers, and NCR. His current interest is in showing how spreadsheet models can be used to solve business problems in all disciplines, particularly in finance and marketing. Wayne enjoys swimming and basketball, and his passion for trivia won him an appearance several years ago on the television game show Jeopardy,where he won two games. He is married to the lovely and talented Vivian. They have two children, Gregory and Jennifer. Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.