Question: 8. Next week, Super Discount Airlines has a flight from New York to Los Angeles that will be booked to capacity. The airline knows from
8. 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 demand follows a normal distribution, and an average of 25 customers (with a standard deviation of 15) cancel their reservation or do not show for the flight. Revenue from a ticket on the flight is $125. 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 $250. Super Discount considers the cost of flying the plane from New York to Los Angeles a sunk cost. a. How many seats should Super Discount overbook the flight? b. What is the expected overage cost and the expected underage cost for Super Discount? By comparing the two expected costs, what conclusion can you draw
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