Broadway Theatre in NYC houses 1761 seats. In order to maximize revenues, the th

Question

Broadway Theatre in NYC houses 1761 seats. In order to maximize revenues, the theatre has decided to have two fare classes. High (H) fare class tickets sell for $100 and the Low (L) fare class tickets sell at a discounted price of $75. There is ample demand for the low fare class, but high fare demand is random. Furthermore, the customers who buy low fares, buy their tickets well in advance before high fare customers. Assume the demand for high fare tickets is normally distributed with a mean of 1200 and a standard deviation of 150. what is my revenue without revenue management, what is my optimal protection level?

Explanation / Answer

NYC can house 1761 seats, H class sells for 100$ and L class sells for 75$. The mean demand for Hclass tickets is 1200 seats with a standard deviation of 150

a. The theatre's revenues without yield management would be just taking the revenues based on average demand from both classes of tickets = (1200 * 100$) + (561*75$) ~ 157275$

b. Optimal protection level is keeping a reserve of high fare seats so that the number of seats does not run out of stock

The optimal protection level in terms of seats will be = no. of seats + 1 Std. deviation = 1200 + 150 = 1350.

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