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oooo AT&T; 8:32 PM -7 28%[ ezto.mheducation.com connect ons Manag 700 peints Problem 11-2 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 32 customers (with a standard deviation of 22) cancel their reservation or do not show for the flight. Revenue from a ticket on the flight is $130. 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 $258. 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) References Bok & Resources Prablenm 11-2Explanation / Answer
Underbooking cost (Cu) =130 per seat
Overbooking cost (Co)= 258 per seat
The cancellation is normally distributed with mean as 32 and SD as 22. Since Variance and mean are different, it is not poisson distribution
Critical Ratio =Cu/(Cu+Co)=0.3351
Inverse normal function for 0.3351 with mean 32 and SD 22 is 22.63. (can be solved through excel or manually)
The allowed overbooking should be 23 passengers
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