Northwest Airlines runs daily flights from Detroit to Amsterdam. They face a fixed cost of $ 70,000 for each flight independent of the actual number of passengers on the plane. There are 310 seats available on a plane. One- way tickets generate revenues of $ 600 apiece when used but are fully refundable if not used. On a typical weekday, the airline estimates that the number of no- shows will range between 0 and 20; all intermediate values are equally likely.
By law, an airline is allowed to overbook flights, but must give compensation of $ 250 to all ticketed passengers not allowed to board. In addition, it must provide those passengers with alternative transportation on another carrier (the cost of providing the alter-native transportation just wipes out the $ 600 revenue). How many tickets should Northwest book on its flight from Detroit to Amsterdam?

  • CreatedNovember 06, 2015
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