(a) Determine the Marginal Cost (MC) and Marginal Benefit (MB) of this issue.

(b) Determine the service level that maximizes profit.

(c) Decide on AL that maximizes profit.

Overbooking (overbooking) is common in airlines. Currently, the number of seats in the aircraft is 200, and the selling price of the seats is $80. According to the regular distribution, the average number of customers who cancel a seat is 30 and the standard deviation is 15. If the customer cancels the reservation, Airline will return the seat price of $800 to the customer. The president of the airline decided to use the Overbooking method. Thus, the airline's AL (seats plus overbooked seats) 200 200, and AL stands for "Authorized Limit." In case of overbooked seats >= number of customer cancellations (e.g., number of overbooked seats = 10. Therefore, if 5 customers cancel their reservations, 205 will be present at the airport. Therefore, 5 will not be able to fly) In this case, the captain will autonomously see if there are any customers on the next flight. Airline will refund $800 for the seat to these customers (customers who voluntarily take the next flight). We also pay an additional $600 to compensate for the inconvenience these customers will experience.

Answer rating: 100% (QA)

a The marginal cost is the cost of overbooking one additional seat which is 800 The margi... View the full answer