Chapter 10 Question 3 Given the following information, determine the optimal overbooking policy for Talia's Beauty Salon. The salon's capacity is 8 patrons. The historic number of no-shows for a typical day along with the probability of occurrence is shown in the table. The average profitability per patron is $100 and the cost of lost goodwill per patron due to overbooking is approximately $50. (Patrons between 8-10) No shows Probability 8 9 10 0 0.50 CO 9 10 0.30 9 N 0.20 6 Expected Profit with 8 Patrons No shows 2 C 1 Patrons 8 7 6 Profit 800 700 600 Turn-away 0 0 0 Cost 0 0 0 Net Profit 800 700 600 Probability 0.50 0.30 0.20 Expected Profit 400 210 120 Total Expected Profit = $730 Expected Profit with 9 Patrons No shows 0 2 Patrons 8 7 Profit 900 800 700 Turn-away 1 0 Cost 50 0 0