3.Ballreich’s has observed that quantity of values in a town increases from 20000 bags per week to 24000 bags per week where it increases advertising expanding from $32000 to $33000. It has also in the market that the number of sales increases from 12000 to 13000 bags per week when its competitors raise their prices from 3.50 per bag to 3.75 per bag( while their advertising remain consistent) A. Ballreich’s knows that the price of electricity demand is 4.7 . If Budweiser increased their advertising by 10% and increased prices by 15%. By what percent would the quantity of sales change ? Short Answer Apply:

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3. An oil company contemplates investing 100 million dollars per year (in constant dollars) for five years in exploratory work to confirm the existence of new exploitable reserves. It will then face a potential delay until market conditions justify exploitation, which will require investing 200 million dollars for three years in production facilities, following which delivery of oil can start with a projected net revenue of 100 million dollars per year, essentially ad infinitum.

a. At a real discount rate of 5%/yr what is the longest delay tolerable between the start of exploitation and the start of oil delivery: i.e., how far in advance is it worth proving out reserves?

b. If the real discount rate were 10%/yr, what is the maximum time delay?

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3. A new large scale senior community isbeing developed, and one of the decisions to be made is where to locate the twofire stations that have been allocated to the community. For planning purposes, the community has beendivided into five tracts, with no more than one fire station to be located inany given tract. Each station is torespond to all of the fires that occur in the tract in which it is located aswell as in the other tracts that are assigned to this station. The followingtable gives the average response time (in minutes) to a fire in each tract (thecolumns) if that tract is served by a station in a given tract (the rows). The bottom row gives the forecasted average number of fires that willoccur in each of the tracts each year. Formulate this problem situation as an integer programming model.

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3. A. Calculate the payoff at expiration for a call option on an interest rate in which the underlying is a 180-day interest rate at 6.53 percent at expiration, the notional principal is $10 million, and the exercise price is i. 5 percent ii. 8 percent

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3-67 Capacity and product mix decisions, linear programming Xu Company makes two types of wood doors:

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