Compute the economic advantage of the alternative recommended by you in part a) above over the other alternative.
A) A large Midwestern railroad finds that it must steam clean its cars once a year. It is considering two alternatives for its steam-cleaning operation. Under alternative 1, the railroad would operate two steam-cleaning booths, operating in parallel at a total annual cost of $50,000. The service time distribution under this alternative is exponential with a mean of 5 hours per car. Under alternative 2, the railroad would operate one large steam-cleaning booth at a total cost of $100,000. However, the service time distribution under this alternative would be exponential with a mean of 3 hours per car. Under both alternatives, the railroad cars arrive according to a Poisson input process with an arrival rate of one car every 8 hours. The cost of an idle hour is thought to be $10 per hour. Assume that the steam-cleaning booths operate (8 hours per day) x (250 days per year) = 2000 hours per year. Which alternative should the railroad choose?
b) An auditor just revealed that as long as the cars are out of work, a loss of $500 per hour in revenue is incurred by the Railroad Company. Compute the economic advantage of the alternative recommended by you in part a) above over the other alternative.