Next week, Super Discount Airlines has a flight from New York to Los Angeles tha
ID: 3217582 • Letter: N
Question
Next week, Super Discount Airlines has a flight from New York to Los Angeles that will be booked to capacity. The airline knows from past history that an average of 24 customers (with a standard deviation of 13) cancel their reservation or do not show for the flight. Revenue from a ticket on the flight is $105. If the flight is overbooked, the airline has a policy of getting the customer on the next available flight and giving the person a free round-trip ticket on a future flight. The cost of this free round-trip ticket averages $215. Super Discount considers the cost of flying the plane from New York to Los Angeles a sunk cost. By how many seats should Super Discount overbook the flight? (Round your answer to the nearest whole number.) Overbooked by passengersExplanation / Answer
The cost of underestimating the number of cancellation is $128
The cost of overestimating cancellation is $230
Cu = $105
Co = $215
P Cu / Cu + Co
P 105/220
P 0.477272727
P0.477
Z Value at above probability = -0.057
Seats to overbook = Mean + Z Value * SD
= 24 + 13*-0.057
= 23.259
=23 (nearest whole number)
Super discount should overbook 23 passengers on the flight.
The cost of underestimating the number of cancellation is $128
The cost of overestimating cancellation is $230
Cu = $105
Co = $215
P Cu / Cu + Co
P 105/220
P 0.477272727
P0.477
Z Value at above probability = -0.057
Seats to overbook = Mean + Z Value * SD
= 24 + 13*-0.057
= 23.259
=23 (nearest whole number)
Super discount should overbook 23 passengers on the flight.
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