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Question 3

The Fly-High Airplane Company builds small jet airplanes to sellto corporations for use by their executives. To meet the needs ofthese executives, the company's customers sometimes order a customdesign of the airplanes being purchased. When this occurs, asubstantial start-up cost is incurred to initiate the production ofthese airplanes.

Fly-High has recently received purchase requests from threecustomers with short deadlines. However, because the company'sproduction facilities already are almost completely tied up fillingprevious orders, it will not be able to accept all three orders.Therefore, a decision now needs to be made on the number ofairplanes the company will agree to produce (if any) for each ofthe three customers.

The relevant data are given in the table below. The first rowgives the start-up cost required to initiate the production of theairplanes for each customer. Once production is under way, themarginal net revenue from each airplane produced is shown in thesecond row. The marginal net revenue is the purchase price minusthe marginal production cost. The third row gives the percentage ofthe available production capacity that would be used for each planeproduced. The last row indicates the maximum number of airplanerequested by each customer (but less will be accepted).

	Customer 1	Customer 2	Customer 3
Start-up cost	$3 million	$2 million	0
Marginal net revenue	$2 million	$3 million	$0.8 million
Capacity used per plane	20%	40%	20%
Maximum order	3 planes	2 planes	5 planes

Fly-High now wants to determine how many airplanes to producefor each customer (if any) to maximize the company's total profit(total net revenue minus start-up costs). Formulate the mixedinteger programming model and solve it using Excel solver for thisproblem.